An Ultimate Guide to Understanding College Financial Aid

Many families are shocked by a college’s sticker price. While the price of tuition can be overwhelming, a financial aid package can make college more affordable.

In fact, income and savings only represent a few of the resources families use to pay students’ college expenses, according to the 2017 Sallie Mae/Ipsos survey How America Pays for College. The survey found that for a typical family, scholarships and grants were the primary source of funding for the 2016-2017 academic year. Scholarships and grants are two types of financial aid that don’t need to be repaid.

With the complexity of paying for college, navigating the financial aid process can seem challenging. Here are a few answers to common financial aid questions.

What Is Financial Aid?

Financial aid helps students and their families pay for college by covering higher education expenses, such as tuition and fees, room and board, books and supplies, and transportation. There are several types of financial aid; these include grants, scholarships, work-study and federal or private loans.

Different types of aid are provided through various sources, such as federal and state agencies, colleges, high schools, foundations and corporations, to name a few. The amount of aid a student receives depends on federal, state and institutional guidelines.

How Do I Apply for Financial Aid?

The first step is to file the Free Application for Federal Student Aid, known as the FAFSA. This is the application for federal student aid. This application is used by many state agencies and colleges and universities to determine college aid.

The FAFSA is available for free through the Department of Education’s website. Families can begin filling out the form as early as Oct. 1 for the following academic year. The deadline for the FAFSA is June 30. But that deadline is only for federal financial aid. Many schools that use the FAFSA to determine aid set earlier deadlines.

Some schools — mostly private colleges — use a supplemental form called the College Scholarship Service Profile to determine their own financial aid funds. For the CSS Profile, the initial fee for the 2018-2019 school year is $25; each additional report is $16. A list of schools that require the CSS Profile can be found on the website for the College Board, the organization that administers and maintains the application.

“Only about 250 colleges require the CSS Profile. Generally, it’s more elite colleges that require the CSS Profile,” says Joseph Orsolini, a certified financial planner with College Aid Planners Inc. “Bear in mind, the CSS Profile will dig much deeper into your family’s finances than the FAFSA.”

[Read what you need to know about completing the FAFSA.]

The CSS Profile, for instance, takes into account assets that are excluded on the FAFSA. It counts the value of a family’s home, small business or a grandparent-funded 529, to name a few a differences.

What Are Different Types of Financial Aid?

There are two types of aid: need-based and merit-based.

Federal need-based aid, for instance, is determined by a family’s demonstrated ability to pay for college as calculated by the FAFSA.

Merit aid, on the other hand, can be awarded by institution, college or private organization to a student for a specific talent or an athletic or academic ability. These awards aren’t based on financial need.

College students are potentially eligible for federal, state or institutional aid. Institutional aid is financial assistance provided by the college and varies by school, since each college uses its own policies and formulas to determine its own financial aid.

According the to the Department of Education, nearly all students qualify for some type of federal student aid. For federal financial aid, there are three types of funds: loans, grants and work-study.

Federal student loans are fixed-interest-rate loans from the government. The interest rate for each academic year is set on July 1, and that rate is secured for the life of the loan. The main program for student loans is the direct loan program. Under the program, undergraduate students can borrow direct subsidized or unsubsidized loans up to $31,000 in total if they’re a dependent. Students classified as an independent can borrow up to $57,000 in total.

Federal grants are federal dollars that don’t need to be repaid. The most well-known higher education grant for college is the Pell Grant. Eligibility for a Pell is based on a family’s expected family contribution, or EFC, and is calculated on the FAFSA. Most families who earn less than $60,000 for their household income qualify for some amount of Pell. The maximum Pell for the 2018-2019 school year is $6,095. A family with $0 as an EFC, for example, will qualify for the full Pell.

Work-study is a program that provides part-time work, typically on campus, to help students cover college-related expenses. Not all students qualify for federal work-study. Students need to qualify through the FAFSA with demonstrated financial need. Under work-study, students earn at least $7.25, the federal minimum wage. The average award amount to a student participating in the program is slightly more than $2,300 per year, according to Sallie Mae’s How America Pays For College report.

When it comes to state aid, most states limit their aid to in-state residents. “By and large, the student would have to be a resident of the state and stay within the state to attend higher ed to be able to receive grants,” says Marty Somero, director of financial aid at the University of Northern Colorado.

[Read four need-to-know facts about state aid for college.]

While the FAFSA should be on a student’s radar to qualify for need-based aid for both federal and state funds, a college-bound student can go a step further and maximize aid with merit-based potential, college aid experts say. That’s because merit aid is one way to close the gap between the cost of attendance and need-based financial aid.

But not all schools award merit aid. Some schools only reserve merit aid for exceptional circumstances. Among the ranked schools that submitted fall 2016 data to U.S. News in an annual survey, more than half of ranked schools awarded merit aid to less than 15 percent of their full-time students. A couple of schools, such as Middlebury College and Dartmouth College, hold a policy of not awarding any merit scholarships.

What Should I Know About Financial Aid Deadlines?

Pay attention to deadlines, experts advise. It’s important to meet financial aid deadlines, which vary by institution. The University of Florida, for example, sets its financial aid deadline for Dec. 15, which is early compared with other schools. In fact, the school’s site encourages students to apply before the deadline. “Apply well before December 15 to ensure that the federal processor has time to analyze and send the results of your FAFSA to our office,” according to UF’s website for the Office for Student Financial Affairs.

Other schools hold later deadlines. The University of Northern Colorado, for instance, sets its deadline for March 1.

“A student wants to be aware of deadlines for each school that they are applying to. Missing a deadline by a day at UNC, for instance, can cost a student $5,000 to $6,000 in free aid versus a parent loan or other types of student loans they have to take out to meet the need,” Somero says. “So deadline dates are critical, and they can vary from school to school. So students want to ensure that they file before the priority deadline date.”

But it’s not just institutional deadlines that parents and students should note and consider.

“Some states have early deadlines for state grant eligibility, and some schools may not be able to provide as generous a financial aid offer if the application is late. Getting organized about the deadlines and the applications requirements is truly the first step in any applications process,” says Brad Lindberg, director of financial aid at Grinnell College.

How Do Schools Award Aid?

Financial aid officers say that while there are many similarities between how schools award aid, each school has its own unique process for processing applications and awarding aid. Some schools offer larger financial aid packages than others, just like some institutions charge higher tuition rates compared with other schools.

“Each college and university is unique in its approach to distributing aid. Working with the individual college and university is the best way to understand how aid works at that particular school,” says Rob Durkle, dean of admission and financial aid at the University of Dayton.

Durkle encourages families to ask about each school’s award methodology. For example, some schools claim to meet full financial need for the cost of attendance with aid, but those packages may include loans. A handful of institutions, including Brown University and Princeton University, package financial aid awards with no loans regardless of a family’s annual household income.

At the University of Dayton, Durkle says, the school raises a student’s financial aid each year to match any tuition increases. In essence, the net price of tuition for students’ freshman year will be the same as their senior year.

[Discover which public schools offer an honors college.]

When Will I Receive a Financial Aid Award Letter?

Financial aid award letters typically arrive in the mailboxes of college-bound students in early spring — usually after or at the same time as a college acceptance offer.

“A student can expect to see an award letter anywhere from December through April, depending on the school,” Somero says.

How Do I Appeal a Financial Aid Award?

The process of appealing an award is known as a professional judgment review.

According to a 2018 College Ave Student Loans survey conducted by Barnes & Noble College Insights, only around a fourth of undergraduate students asked a financial aid office for more aid. The survey also found that 37 percent of students surveyed wished they would have asked for more aid from their school.

But according to Orsolini of College Aid Planners: “You need more than ‘I need more money’ to appeal a financial aid award.” Orsolini says families need a legitimate reason for schools to re-examine students’ financial situations.

To be successful with an appeal, a family needs to demonstrate there’s been a significant change in their financial circumstances since they submitted their application, says Dan Blednick, director of college guidance at TEAK Fellowship, a nonprofit organization that serves students from low-income families in New York City.

College aid experts say a family will usually be asked to submit a letter that summarizes their special circumstance that affects their ability to pay. A qualifying special circumstance might be a recent job loss, divorce, death in the family, out-of-pocket medical expenses or care costs needed for an elderly parent, to name a few examples.

“I would recommend trying to connect with a specific person in the college’s financial aid office who is assigned to your case,” says Blednick, who advises providing documents that reflect a need for additional funding.

If there’s been a recent drop in household income, for instance, some schools may consider revising their financial package based on sufficient documentation, he says. In some instances, some schools might match an award offered by a peer institution, he adds. “If all else fails, parents can inquire about the availability of Parent PLUS loans, the possibility of increasing the student’s federal loan or investigating private loan options.”

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

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An Ultimate Guide to Understanding College Financial Aid originally appeared on usnews.com

Update 07/03/18:

Correction 07/09/18: A previous version of this story misstated need-based aid. There are two types of aid: need-based and merit-based.

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