What is Financial Aid?

There are a variety of financial aid tools available to students today, including scholarships, need-based awards, work-study employment and student loans. Let's start with need-based financial aid.

Nearly two-thirds of today's full-time college students receive some form of need-based aid [source: NCES]. Need-based financial aid eligibility is based on two calculations -- the total cost of education and the family's ability to pay. The cost of education can vary significantly from institution to institution. Generally, these calculations include all reasonable costs (tuition, room, board and living expenses) of attendance.

To apply for need-based financial aid, families must complete the Free Application for Financial Aid (FAFSA) and, if appropriate, the College Scholarship Service's PROFILE application. These documents are used to determine what amount, if any, a family (and that means both parent and student) can contribute to the annual cost of attendance. That number is known as the Expected Family Contribution (EFC). The specific amount of your EFC may vary somewhat from institution to institution, but the formulas in place ensure that most EFCs are similar.

The formulas consider a variety of family circumstances when determining eligibility. (The College Board Web site has some great financial aid calculators you can use.) Consequently, there's no real cut-off point or maximum income a family can have and still qualify for assistance. Even if you have a comparatively high income, you may still qualify for need-based aid, particularly if you have more than one child in college. Every student, regardless of financial situation, should consider applying for need-based aid to see what happens.


A Financial Aid Example

 Expected Family Contribution calculations and financial aid packaging policies vary from institution to institution. Here's an example of what might happen at Duke University in Durham, N.C.

A family completes and submits the PROFILE and FAFSA no later than March 1. (The school requires tax forms, but those aren't due until March 15.) Duke also invites the family to submit letters that explain any extenuating circumstances that might affect their ability to support educational expenses.

At Duke, students are admitted without reference to their need for financial aid. This policy of "need-blind admissions" means that the school doesn't determine an applicant's aid eligibility until after the student has been admitted. As soon as the financial aid department learns of a student's admission, it pulls together the application materials, determines aid eligibility and prepares awards for those who are eligible. Who will be eligible? The formula Duke uses considers a wide variety of circumstances -- there is no right answer. However, here's an example of a fairly typical applicant's award:

The Smiths are a family of four. Both parents work, and Melissa, the Duke applicant, will be the only one in college next year. Their family income is roughly $60,000 and their assets are pretty standard relative to their income. They own their own home and have offered no unusual circumstances.

In this case, the parents' contribution would likely range from $8,000 to $12,000. Melissa's contribution in this example is $2,000, with $1,900 coming from summer earnings and $100 coming from Melissa's savings. The cost of attending Duke for the 2009-2010 school year is $53,000. For illustration purposes, let's assume that the parents contribute $12,000. So here are the numbers (all figures are in U.S. dollars):


Cost of Attendance


Parent Contribution

- 12,000

Student Contribution

- 2,000



Demonstrated Need



In addition to guaranteeing need-blind admissions, Duke meets 100 percent of each student's demonstrated need. Here is how this works:


Demonstrated Need


Work Study








Total Award


The number of siblings in school at the same time is important. Parent contributions generally go down by 40 to 50 percent if more than one child is in school. Remember, this is just one example, and your results are likely to be different. For specific details, contact your prospective institution's financial aid office.


Qualifying for Financial Aid

If you demonstrate need, you're eligible for need-based financial aid. Demonstrated need is a simple concept -- it's each institution's cost of education minus the Expected Family Contribution (EFC). So the "formula" looks something like this:

Cost - EFC = Aid Eligibility


If your aid award includes federal dollars -- and most do -- your total aid cannot exceed your demonstrated need. Some institutions will meet 100 percent of your demonstrated need; others will meet only a portion of that need. Regardless of the portion of need that a school meets, almost all package aid offers three types of assistance:

  • Loans -- Low-interest student or parent loans that will need to be repaid
  • Grants -- Federal or institutional awards that don't have to be repaid
  • Work-study --Part-time campus employment subsidized by the Federal government.


The breakdown of funding in each financial aid package varies from one college to another. While grants are everyone's favorite type of financial aid, don't discount work and loan opportunities.