Understanding Your Financial Aid Packet

Today’s guest post is by TuitionCoach, an online consulting service that offers tips, interactive tools, and deals to ensure students plan better for the cost of college.

Getting in to your dream school is only the first part of the journey—figuring out how to pay for it all is an even bigger challenge! To ease the confusion surrounding college costs, here is some expert advice to help you examine and understand your financial aid packet.

In this article we’ll cover the most essential aspects of a student’s financial aid packet, including:

The Expected Family Contribution (EFC)
How the financial aid formula works
Understanding the financial aid award
Negotiating a better financial aid

What determines the Expected Family Contribution (EFC)?

When it comes to calculating your parent’s EFC, there are dozens of variables at work. The four primary factors are:

1. Your parent’s adjusted gross income. That’s the number at the bottom of the 1040 tax form your folks fill out. The EFC formula will ask for nothing if their reported income is very low and up to 25% or more if the reported income is over $100,000. As your parents report more income your EFC will increase.

2. Your parent’s non-retirement assets. The EFC formula will total all of the parents’ reported assets, including bank accounts, stocks, bonds, and real estate equity (usually not the house you live in). You’ll be asked to contribute about 5.6% of that total for college.

3. Your total income from all sources. Typically, student income will not affect the EFC until it reaches $3,000. After that threshold is met and certain other allowances are considered, the EFC formula will expect that about 50% of every dollar of income will be added to the family’s EFC. For independent students the figure is even higher.

4. The student’s assets. Here, the EFC formula runs amok and goes after reported student assets at a rate of up to 25%. Again, it is even worse for independent students.

How the financial aid formula works

Now that we’ve covered how the EFC works, let’s take a look at how the EFC fits into the larger financial aid picture:

First, the actual cost of college needs to be known. If you want to find out what college costs, ask the college, “What is your cost of attendance (COA) or student budget?” This is usually much larger than the tuition, which does not include room and board and a host of other charges. For the sake of illustration, let’s list three generic Costs of Attendance:

Let’s now assume a student has completed a FAFSA and his Expected Family Contribution was $10,000. Let’s also assume the student was accepted to a state university, a private college and an elite college. This is what the next step in the financial aid process would look like:

Note: the EFC remains the same regardless of what the college costs!

Understanding the financial aid award

Along with an acceptance letter a college will provide a newly-admitted student with an estimated financial aid award. The award offer should contain the total cost of a year’s attendance at college (COA) or Student Budget.

Let’s say, for example, the COA is $42,000.

Next, the college should provide you with a statement of what the expected family contribution amount should be. Often this is broken out into “Contribution from the student” and “Contribution for the Parent(s).” It might look like this:

They will then subtract the EFC from the cost of college to determine eligibility for aid:

If this student has applied for loans, been awarded grants, or even won some scholarships, the award may look something like this:

Now this is an example of an ideal award. In this scenario the student has managed to balance self-help aid (through a work/study program), free money (such as awards, grants, and scholarships), and federal aid (Stafford Loans, Perkins Loan). Most importantly, this financial aid scenario meets the entire need.

But do most colleges always provide such exemplary financial aid awards? No. As a matter of fact, when you are confronted with an inadequate award you don’t have to accept it—you can actually negotiate a better financial aid offer by using some of the compelling points below.

Explain why you love that particular college - Be specific. Explain what the college offers that makes it such a great fit with the needs of your student. We all want to feel loved. Your case is always much stronger if the administrator hears how much the student wants to attend.

Explain why you can’t pay the suggested amount - Again, be specific here. And don’t fudge the truth. Administrators can detect sincerity right away, so it pays to be honest here.

Mention any special conditions that affect your capacity to pay for college – For example, if the student worked before starting college but understandably cannot work while in college, then you can report a “loss of income.” Similarly, if a parent’s earned income will be less in than what was reported for the prior year, you can report a “loss of income” here as well. Under such special conditions, once the student is admitted, contact the financial aid office and explain that the income earned in the prior year is largely irrelevant, since it will no longer represent a realistic standard on which to base for your ability to pay for college.

The financial aid process can be a complicated ordeal, but by educating yourself to understand the true cost of admission you will be better prepared to plan accordingly and avoid excessive student debt. Make sure to keep these tips in mind when reviewing your own financial aid packet—you worked this hard to get admitted, don’t let the dollar signs keep you down!

Have a question about your student’s financial aid packet? Leave it in a comment below for college expert and Getting In! co-author Steve Cohen to shed some insight.

written by
Guest Blogger
April 24, 2012

13 Responses to “Understanding Your Financial Aid Packet”

  1. Debbie
    April 28, 2012 at 6:50 am #

    Thanks for the info. I am concerned that the EFC is more than we can come up with for college funds and why the government doesnt take debt to income ratio in to count. I will also give the financial department a call regarding the aid package because it doen’t even cover the difference with the EFC like your example. And why would a loan be a part of the package? Why not grants and scholarships.

  2. Felicia Johnson
    April 30, 2012 at 11:42 am #

    What is the difference between a subsidized Direct Stafford loan and an unsubsidized Direct Stafford loan?

    • Jasmine
      May 1, 2012 at 2:40 pm #

      @Felicia Johnson: @Felicia Johnson: Direct Subsidized Loans are for students with financial need. You are not charged interest while you’re in school at least half-time and during grace periods and deferment periods.You are not required to demonstrate financial need to receive a Direct Unsubsidized Loan.Interest accrues (accumulates) on an unsubsidized loan from the time it’s first paid out

  3. Kevin Parker
    May 1, 2012 at 5:43 am #

    Thank you very much to bring out this issue before all of us. This is really a very informative one and the discussion and the points you have raised is just wonderful. I have already gone through the whole and just loved this.

  4. Ruth Anne Lemley
    May 1, 2012 at 1:11 pm #

    My childs father owes me $16,000 in past due child support, but when I heard they do not take that into account and help her out more. Is that true?

  5. Steve Cohen
    May 1, 2012 at 2:23 pm #

    Some answers:

    Debbie — Loans are almost always part of the financial aid package; and often a larger part than grants or scholarships. It is simply, and unfortunately a fact of life when dealing with most colleges. That is why is it important to apply to several colleges and see what the different packages entail — once they’ve granted admission. Addressing the bigger “why” — political and economic — this has emerged is a much longer, more involved story; and one subject to much debate.

    Felicia –The difference between subsidized and unsubsidized Stafford loans is simply the interest rate the student pays (with the subsidized rate being much lower.) There are tighter limits and how much a student can borrow in subsidized loans. Unfortunately, the whole Stafford loan world is in a tizzy right now — Congress and the President are playing politics with the entire issue and as of today, May 1st, it is unclear whether there will be any subsidized loan money available starting this summer.

    Ruth Anne — Uncollected child support can be a factor in determining a financial aid package. Call the college’s financial aid officer immediately and talk with a counselor. Explain the situation. Financial aid officers have some professional discretion.

  6. Donna
    May 3, 2012 at 5:00 am #

    Does my child have to accpet the full finanacial aid award? He was awarded direct subsidized, unsubsidized and some federal perkins loan. He will accpet the direct subsidized but if he doesn’t need the full amount of the rest, which is better the unsubsidized direct or the Federal Perkins loan? We are helping as much as we can to try to keep his college debt down.

  7. Steve Cohen
    May 3, 2012 at 7:41 pm #

    No, he doesn’t have to accept an entire package.

    The Perkins loan has a slightly lower interest rate than the unsubsidized Stafford loan — 5% vs. 6.8%. But you alos have a lower borrowing limit for Stafford.

  8. Sophia. T
    May 5, 2012 at 5:54 pm #

    My son recieved a partial scholarship (books, and tuition) for a college out of state. We completed FAFSA. But he didn’t recieve anything from it. The school took it all. He was able to stay with family but still needs traveling expense to get to school and living expenses, and thing needed for school. I send him what’s needed but its a struggle. Is that right for them to do that? I fell like they didn’t really give him anything.

  9. Steve Cohen
    May 9, 2012 at 9:54 am #

    If the college gave your son a grant for tuition and books, that really can be a substantial amount. Take a look at how much you’ve saved, not just how much you still had to come up with to pay for room & board, travel, and miscellaneous expenses. It never hurts to have a friendly conversation with a member of the college’s financial aid office; there is always the chance that they can find a bit more aid for you.

  10. Melissa
    May 10, 2012 at 9:21 am #

    My daughters EFC is way beyond anything we can afford, is it better for her to start the appeal process with the financial aid advisor or is it okay for me as the parent to start the appeal? I will be loosing my job at the end of the month and feel this is good cause of appeal.

  11. Steve Cohen
    May 14, 2012 at 8:12 am #


    Since the EFC is about the FAMILY’s expected contribution, it is absolutely OK for you start the appeal. And yes, it is (unfortunately) a good ground for appeal.


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