Financial Aid: Factors Influencing Your Award Amount

What do colleges consider when making a financial aid award?

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Whether it's an undergraduate degree or medical school, the cost of a higher education isn't getting any lower. For students and families who are trying to navigate the financial aid landscape, understanding how financial aid decisions are made is the first step toward covering tuition and other education expenses. From setting costs to assessing the "Expected Family Contribution," here's a look at some of the most common thing colleges take into account when calculating financial aid. (For more information on financial aid -- including the different types of aid that might be available -- check out Nolo's article Financial Aid Basics.)

Costs. Most colleges calculate costs based on their tuition, the cost of living in that area (housing, transportation, etc.), books, food, other fees, and miscellaneous expenses. It might be a good idea to speak to students currently attending the school you are interested in, in order to ask whether their real-life cost of living matches what the college assesses it to be.

Some students find that their actual costs are higher, especially if colleges allow for only minor "miscellaneous costs." Several organizations such as College Board, or the various educational companies such as Princeton or Kaplan also publish their own calculations of the general "cost" associated with United States colleges.

"Need" calculations. Each college determines student need differently, There is no magical financial aid formula, but almost every school will begin by looking at a student's Free Application for Federal Student Aid (FAFSA) -- and especially at the "Expected Family Contribution" or EFC. Then they'll calculate how much they have available from the various types of aid described above to fill in the rest of the student's need.

A student's "need" is usually calculated by subtracting the student's EFC from the cost of attending that particular school (including tuition, books, cost of living, and miscellaneous expenses). Generally, a student's aid award will depend on the student's need, the school's policies towards loans, the student's registration status (in-state, out of state, or international, each of which may cost a different tuition amount), the activities a student participated in before college (especially for merit-based scholarships), when the student applied (there is often more money available earlier in the cycle, especially for scholarships), and various other factors depending on the individual school.

Although the general formula discussed above is based on the costs of that college and your EFC, colleges also often have their own unique criteria that goes into the equation. Some schools base their need calculations only on your family's income. Others include both family income and assets (which can be a problem if, for example, your parents own a house that's worth a great deal, but don't have a lot of cash). Still others use federal or state-mandated factors and have a set policy towards students who fall into low, middle, or high need categories. Asking how a school calculates need may help you determine what category you fall into. (For tips on making sure you live within your means while you're in school, check out Nolo's article Making a Budget for College.)

Home equity. Some colleges consider home equity a resource that families have to pay for their student's tuition, and add it into the student's need calculation. Others do not consider home equity at all when calculating aid. Ask a school about it's individual policies on home equity and other similar assets, to see whether yours will be taken into account.

Deadlines. Some schools provide incentives for applying for financial aid in a timely manner. Like applications for admission, financial aid decisions are usually made on a rolling basis. This often means that more aid is available earlier in the cycle, leaving schools with less to offer later applicants. This can also mean that students who in get in off the waiting list receive smaller aid packages due to the lateness of their admission. 

Other schools, however, consider every applicant for full aid, regardless of when they applied in the cycle -- as long as they meet the standard deadline. Be aware of what financial aid deadlines a college has in place, to ensure that you have the best chance at the most aid. Get your paperwork in as early in the process as possible.

Summers. Some schools factor the assumption that a student will work during the summer into their expected contribution calculation. This tends to reduce aid amounts by $1,000 to $3,000. Although most schools follow this policy, some award financial aid for a full 12 months, accounting for breaks as well. Asking what policy a school has about student contributions will allow you to plan for summer and winter breaks more practically.

Married or divorced parents. FAFSA considers only "custodial" parents when determining a student's EFC. Some colleges use this calculation at face value. Others change the amount depending on whether a student has divorced parents, step-parents, and so on. Such colleges vary between assessing the incomes of all parents and step-parents, counting only the "birth" parents, or determining which pair is more suited to contribute to the student's education depending on where the student lives most of the time. How a school considers step-parents can make a big difference in a student's aid calculations.

Residency. Most schools charge a lower tuition amount for in-state residents, and a higher one for out-of-state residents. International students are usually charged even higher than that. A minority of schools assess a flat tuition regardless of state residency, but still charge more to international students. Although out-of-state students usually have to pay more for their education, most colleges allow a student to apply for residency after being enrolled for one year. Depending on the college, that may work out to be less money overall at the end of four years. 

Some colleges also have more aid available for in-state residents. Knowing what a school's policies are, and how it assesses in-state residency (some allow you to qualify as in-state if you have worked in that state in the past several years, or if you visited for an extended period of time in the last year, etc.) will help you calculate the costs of attending that school.

How aid affects admission. Although this does not affect how a student's aid is calculated, in rare cases, receiving aid lowers a student's chances of admission. This is because a few schools leave a small percentage of seats (usually less than 10%) open for students who can pay full tuition.

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