All across Long Island, families are receiving an important piece of mail that will determine the next four years of their college-bound teenager’s lives. It’s not the acceptance letter (though those are obviously important too). Instead, it’s the letter outlining a student’s financial aid package. Acceptance letters and financial aid packages may arrive together or, more likely, separately, which can lead to continued anxiety for students and their families. Once it arrives, translating the jargon can be a challenging. Long Island Mamas Network has put together some resources to help families find their way regarding interpreting college financial aid packages.
Types of Financial Aid
The term “financial aid” includes several kinds of assistance. Students may be eligible for multiple kinds of aid. Eligibility is determined by household income, size and number of family members attending college. Families must complete the FAFSA (Free Application for Federal Student Aid) and the CSS Profile (if required – see the individual college’s website to determine if they require the CSS Profile). Once families have completed the required forms, they will receive a financial aid package. The package may include:
- Grants – “Free” money from the state or federal government. These do not have to be repaid.
- Scholarships – “Free” money from a university or private corporation. The eligibility for these funds may be based on financial need, academic area of study, ethnic/racial background, scholastic achievement, community service and/or other factors.
- Loans – There are several kinds of loans that can be used to finance education costs:
- Parent Loan – A loan granted on the basis of financial need from the federal government. These loans are in the parent’s name.
- Unsubsidized Loan – A loan granted on the basis of financial need from the federal government. Students that use this kind of loan will be charged interest while the student is still in school.
- Subsidized Loan – A loan granted on the basis of financial need from the federal government. Students that use this kind of loan will not be charged interest until the repayment period.
- Work Study – Eligible students are offered jobs with the expectation that their wages will be used towards the cost of their education.
Once a family’s financial information is communicated to a college, an EFC (Expected Family Contribution) will be determined (Note: Your EFC is not the amount of money the family will have to pay for college or the amount of federal student aid they will receive. It is a number used by the school to calculate the amount of federal student aid you are eligible to receive). Some schools are dedicated to meeting 100% of a student’s demonstrated need. Other schools cannot or will not make this guarantee. Sometimes, families will receive financial aid packages that leave a gap. This gap can be filled with non-need based forms of aid, like private loans and/or private scholarships.
Comparing Financial Aid Packages
FinancialAid.org states there are two figures that provide meaningful information about the cost of the college – net cost and out-of-pocket cost:
- Net cost is the difference between the cost of attendance and the financial aid package, once everything has been put on an apples-to-apples basis. The cost of attendance figures should include all the missing components.
- Out-of-pocket cost is the difference between the cost of attendance and just the gift aid components of the financial aid package (grants and scholarships). It excludes all loans from the financial aid package. Out-of-pocket cost is a measure of just how much the college is really going to cost you. It tells you how much money you will spend from savings (including section 529 college savings plans and prepaid tuition plans), current income (including tuition payment plans) and future income (including need-based and non-need-based student loans) in order to pay from college.
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By Rachel Minkowsky
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