Paying for College 101: Learn the Types of Financial Aid

November 30, 2010 | posted by Myra Smith.

This is the sixth post in a series entitled “Paying for College 101: What You Need to Know about Financial Aid” by Myra Baas Smith, Executive Director of Financial Aid Services at the College Board.

I’m back, and apologize for the long gap between the fifth and sixth item on our list of things you should know about financial aid, but now is a good time to talk about financial aid awarding policies and types of aid. Right now, many aid offices around the country are preparing award offers for the new award year, starting with early decision or early action awards.

So- the sixth thing you need to know about financial aid:

Definitions are Important.

The two most important definitions are eligibility and need. With eligibility, some defined criteria must be met in order to receive a type of aid. It could be something such as a state of residence, the level of the family contribution, a program of study, academic performance, an athletic ability, and so forth. Eligibility will need to be demonstrated - perhaps by your high school transcript, a video or portfolio, or by completing a financial aid application.

Need is the difference between the cost of attendance and the calculated family contribution. This family contribution is derived from data collected on the aid application, whether the FAFSA, the CSS/Financial Aid PROFILE, or an institutional application. Remember, the family contribution is a formula-derived value that compares your ability to pay all or part of the cost of college in relation to all other families just like yours as well as those with more resources and those with less.

Let’s look at an example: College of Sample has a total cost of attendance of $35,000. The family contribution, as calculated by federal methodology (the FAFSA) is $17,000. When we deduct the contribution from the cost of attendance the family has $18,000 in demonstrated need which turns into eligibility for aid based on need.

Know the Types of Financial Aid.

That brings us to the definitions of two distinct categories of financial aid. Merit aid is gift aid that does not have to be repaid and is awarded on the basis of a demonstrated characteristic – not demonstrated need. Merit aid is typically awarded during the admission process by either the financial aid or admission office, often in conjunction with an academic unit of the college.

When applying for merit aid, make sure you understand the eligibility criteria and process and also the renewal criteria. Be very wary of merit awards that are for the first year only or have very high renewal criteria. Remember that college is going to be tougher than high school and evaluate renewal criteria with that in mind. It is always good to ask about renewal criteria as well as how many first year students are able to meet those criteria. These criteria could include meeting a grade point average, continuing in a course of study, or a specific number of enrolled hours.

New merit awards are rarely available to returning students, so if you don’t get a merit award when you are admitted, don’t automatically count on becoming eligible in your upperclass years.

Need based aid is awarded based on demonstrated need and can come from federal, state, college, or outside funds. Need based aid cannot exceed your demonstrated need and you need to be aware that the amount offered can be affected by receipt of merit or external awards. Possible adjustments could include reducing college grants, replacing loan or work awards, or allowing the additional aid to go toward unfunded or unmet need. Ask your school about its policy, keeping in mind that any combination of merit and need based aid – from any source – cannot exceed the total cost of attendance.

In my next post, I will discuss the various types of financial aid you might encounter in an award letter. We will look at how each is funded and what you should be aware of before accepting an aid offer in part or in total.

Written by Myra Smith

Myra Baas Smith is the Executive Director of Financial Aid Services at the College Board. The College Board is a mission-driven not-for-profit organization that connects students to college success and opportunity. Myra also has served as the Director of Student Financial Services at Yale University and Smith College.

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http://www.CollegeFundingResource.com Felicia Gopaul @ College Funding Resource

Myra, I appreciate the distinction that you make between eligibility and need. Parents often will confuse the two and as the article makes clear, they are not the same thing. I like to remind parents that just because they have eligibility for financial aid does not mean the college of their choice will fulfill all of their need.

I also appreciate you sharing the difference between merit aid and need based aid. While these two types of aid are easier to understand, you make a great point about understanding the continuing responsibilities that may be tied to merit aid. I’ve seen a number of students lose their merit aid between freshman and sophomore years by not realizing their aid was dependent on maintaining their GPA or other criteria.
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