Financial aid is intended to make up the difference between what a family can afford to pay and what higher education costs. More than half of the students enrolled in college receive some sort of financial aid, according to the College Board.

I. Free Application For Federal Student Aid (FAFSA)
Known commonly as the FAFSA, the Free Application for Federal Student Aid is the starting point for college financial aid. The form is produced and processed by the U.S. Department of Education. Information disclosed on the form is used by colleges and state agencies to help determine the size of financial aid awards.

  • Two formats - Paper and electronic.
  • The paper version is distributed to high schools. The form also can be completed, filed and tracked online using FAFSA on the Web. Filing the form online reduces processing time.
  • Filing timetable - January 1 is the first date a student is eligible to file the FAFSA if planning to enroll later that year. Families should try to file as close as possible to this date in order to meet school, state and private aid deadlines.
  • Tax return needed - Families should complete income tax returns before filling out the FAFSA, as much of the information is the same. You do not need to file your return with the IRS before filling out the FAFSA.

II. Expected Family Contribution (EFC)
Based on family financial information included on the FAFSA, a Student Aid Report is produced that includes the Expected Family Contribution, which is an estimate of what a family can contribute to college costs. The EFC is sent to state scholarship agencies and colleges listed on the FAFSA. The figure is used to determine the size of a financial aid award.

It is not expected the EFC will come from current income alone. It assumes the figure will be met through a combination of savings, current income and borrowing.
  • Federal Methodology (FM) - A need analysis formula used by the federal government and a majority of higher education institutions that is based on information captured on the FAFSA. It takes into account family size, the number of family members in college and taxable and nontaxable income.
  • Institutional methodology (IM) - A second need analysis formula used by some colleges and universities in determining financial aid packages. It takes into account a fuller range of family assets than the Federal Methodology, including home equity and family farms, and assumes the students will work at least part of the year. The Institutional Methodology relies on information collected on the CSS/Financial Aid Profile, a financial aid application administered by the College Board and used by many institutions.
Types of Financial Aid and College Loans

Related Articles
  1. Personal Finance

    To Maximize Financial Aid, File an Early FAFSA

    By submitting the FAFSA as soon as possible, you may have a better shot at getting state- and college-sponsored financial aid.
  2. Personal Finance

    Student Financial Aid Changes: FAFSA 2015-2016

    Here is a look at some of the major changes to FAFSA in 2015 - 2016 and how they will affect student financial aid.
  3. Financial Advisor

    Paying for College: Top Ways to Budget and Save

    Saving for your kids' college education can be complex and expensive. Here are some popular vehicles that help perpetuate college funds.
  4. Personal Finance

    When Saving for College Is a Bad Idea

    Is there a time when saving for college is a bad idea? A close look at financial-aid rules.
  5. Personal Finance

    How to Manage 529 Plans for Maximum Financial Aid

    Understand how different types of 529 plans affect financial aid, and you'll increase your possibility of getting funds.
  6. Personal Finance

    A Quick Guide to How FAFSA Loans Work

    If you’re headed to college and want to know how to apply for financial aid, this is where you need to start.
  7. Personal Finance

    What That Financial Aid Offer Letter Really Says (And How to Get More)

    Yes, you got a college financial-aid offer, but how good is it really? How to understand the fine print.
  8. Financial Advisor

    Helping Clients Weigh College Financial Aid Offers

    Now's the time for reviewing financial aid offers, which can often be confusing. Here are a few tips to help clients make sense of them.
  9. Personal Finance

    How to Make the Most of a 529 Savings Plan

    529 plans can be an extremely effective way to pay for college expenses, but be aware that there can be some pitfalls with distributions and financial aid.
  10. Personal Finance

    How to Pay for College Without Huge Loans

    These strategies can help pay for college without amassing huge debt.
Frequently Asked Questions
  1. How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle ...
  2. How did moral hazard contribute to the 2008 financial crisis?

    Learn about moral hazard, how it can affect outcomes and how it contributed to the conditions that led to the 2008 financial ...
  3. Which mutual funds made money in 2008?

    Read about the only mutual fund that turned a profit in 2008. Learn about risk-averse investment strategies and the financial ...
  4. Were Collateralized Debt Obligations (CDO) Responsible for the 2008 Financial Crisis?

    Collateralized debt obligations are exotic financial instruments that can be difficult to understand, Learn the role they ...
Trading Center