The Ultimate Guide to Understanding Financial Aid for Colleges

Monday, July 10, 2023

In addition to navigating the college admissions cycle, students and families need to prepare for the cost of college and understand the financial aid process. Applying for financial aid is a multi-step process, and the financial aspect of college life can be significant. So, it’s worth learning as much as you can about different financial aid programs.

What Is Financial Aid?

Financial aid is funding that undergraduate students can receive from various sources to help pay college expenses, whether they attend public or private colleges. Some of this funding does not require repayment, but student loans do.

How Does Financial Aid Work?

Students typically must fill out an application to qualify for aid. Need-based award applications generally request information about the family’s financial situation, including job status, tax payments, and financial assets. For merit-based awards, students generally answer questions about their academic achievements and accomplishments outside of school.

Each college you apply to will send a financial aid award letter that provides details on the amounts and types of financial aid you qualify for at that school. You can choose which sources of aid to accept or reject.

Types of Financial Aid

Traditional financial aid comes in many forms, and undergraduate students can be awarded one or more. Financial aid includes student loans, work-study programs, scholarships, and need-based grants.

A student loan allows you to borrow the money to pay for college, but you must pay it back with interest.
A work-study program is a part-time job that helps you pay your college expenses. Jobs can be on– or off–campus, but the work is often related to your course of study.
Scholarships are gifts offered by alumni groups, nonprofits, and private organizations and do not need to be repaid. They are often based on academic achievement but are sometimes awarded based on other factors, including financial need.
Grants are another source of free money for college. You only need to repay it under certain circumstances.

What Are the Pros and Cons of College Financial Aid?

It may seem like there are no disadvantages to accepting financial aid, but student loans especially have both pros and cons. You should give careful consideration to accepting any student loan.

Pros:

Credit checks are not required to qualify.
Loans may allow you to attend what would otherwise be a cost-prohibitive school.
Federal student loans have a fixed rate, meaning it will never increase.
If you qualify for a subsidized loan, your interest will be paid by the federal government while you’re still in school.
You can choose a repayment plan to fit your needs.

Cons:

Student loan payments can take a long time to pay off.
The amount you can borrow is capped, so you likely will have to find other sources of financial aid.
You may not qualify for a subsidized loan.
Defaulting may have serious consequences.

With student loan debt relief being such a hot button issue, you may be wondering if you will have to pay your loans off in the future. The U.S. Department of Education is currently blocked by the courts from providing the student loan debt relief program, and the case is in litigation. This will not prevent you from applying for financial aid or relieve you from loan repayment in the future, since it only applies to students who received loan disbursements on or before June 30, 2022.

How to Apply for Financial Aid

The FAFSA is your key to being awarded need-based aid. It can be daunting to fill out, but these tips can make the process go more smoothly for you.

Fill Out the FAFSA ASAP

The Free Application for Federal Student Aid (FAFSA) is one of the first and most important components of the financial aid process. The FAFSA opens on October 1, and it’s generally beneficial to fill out and submit the form as soon as possible in order to maximize the amount of aid you will be eligible for. However, international students are not usually eligible for U.S. federal aid and should look at other sources.

Take Advantage of the Net Price Calculator

Many families understand that they won’t be expected to pay the sticker price for tuition, but they might be unsure about how much they will actually need to pay. To help shed some light on this, all colleges are required to include a Net Price Calculator, which students can use to estimate how much they will be expected to pay based on their unique financial circumstances and background. After filling out a few questions, the Net Price Calculator generates an estimate of how much a student will likely need to pay, based on their Expected Family Contribution (EFC), which their FAFSA application determines.

Understand What Meeting Demonstrated Financial Needs Means

Out of the over 3,000 colleges in the United States, very few are able to guarantee they will be able to meet every student’s full financial needs. In fact, it’s not uncommon for colleges to only be able to meet around 40% of a student’s demonstrated need, even at top-tier universities. Even when schools do say they meet 100% of demonstrated financial need, some of these colleges may achieve this via loans, which ultimately need to be repaid.

Weigh Your Financial Aid Packages

It’s important for incoming undergraduate students to consider every component of each financial aid package they receive instead of just focusing on a single number. If financial aid is an important consideration during your application process, keep your options open when it comes to researching universities and building your balanced college list.

Do your research about which schools are likely to be able to provide substantial financial aid as well as institutions where you may be eligible to receive aid based on your academic performance. Keep an open mind throughout the application process so you can choose the institution that best fits both your academic and financial needs.

Read more:

How to stand out when applying for financial aid.
How to use financial aid leveraging when deciding where to enroll.
Learn how to choose a college that fits your financial needs.

Tune in to our Just Admit It! podcast episode to learn more about financial aid.

Student Eligibility Requirements

To be eligible for federal financial aid, you must be a U.S. citizen or eligible noncitizen who is enrolled in an eligible academic program and can demonstrate financial need. Undergraduate students seeking financial aid from other sources may have to meet different eligibility requirements.

Costs Covered by Financial Aid

Financial aid doesn’t just cover tuition and fees, it can also help pay for housing, food, transportation, books, and supplies, among other expenses. However, many families will still have to meet some of the expenses out of pocket, so it can be helpful to have a discussion about college costs and budgeting.

Sources of Financial Aid

Even if you’re awarded financial aid through the FAFSA, you may still need additional assistance. Fortunately, there are numerous non-traditional ways to pay for college, including private loans, institutional and state grants, student sponsorships, and crowdfunding.

Tips for Getting the Most Out of Financial Aid

To get the most out of your financial aid, it’s important to follow these tips:

Submit the FAFSA as early as possible — October 1 is the earliest you can file. Some federal aid is awarded first-come, first-served, so timing is everything.
Don’t assume you won’t be eligible for financial aid and decide not to apply. In all likelihood, you are eligible.
Take advantage of the IRS Data Retrieval Tool, which transfers federal tax return information directly onto the FAFSA form so you can reduce filing time and error rates.
Review the out-of-pocket costs at each school that awards you financial aid. That’s more important than the size of the aid package you are offered.
Don’t be afraid to appeal. The FAFSA requires tax information from two years prior. For example, the 2022-23 form asks for income and taxes for 2020. If financial circumstances have changed for the worse since then, you can appeal to the college for more aid.

Learning as much as you can about the financial aid process can help you feel less overwhelmed and more prepared. For expert help with navigating the financial aid application process and college admissions in general, schedule an Initial Consultation with one of the experts on our team.