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Understanding Financial Aid: How Financial Aid Is Determined



As a low-income student you will certainly be eligible for some sort of financial aid to help you pay for any college you plan to attend. Financial aid includes grants that you don’t have to pay back, as well as loans that you do have to repay. Every year you are in college, you need to reapply for financial aid. This means that every year your financial aid package will be slightly different. If your family income decreases while you are in college, you will have to pay less money. If your income increases, the college will expect your family to contribute more money that year.

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Financial aid comes from two major sources: the government (federal and state) and the college you will be attending.

The first important step in determining your financial aid is figuring out how much you and your parents can reasonably pay per year toward your college education. This sum is called the Expected Family Contribution or EFC.

To determine your EFC, you must fill out the Free Application for Federal Student Aid or FAFSA. The FAFSA asks questions regarding topics like how much money your parents earn, how many people live in your home, how much savings your parents have, etc. From this form the government determines a sum that you and your family can realistically contribute to your education both in the form of grants and loans.

Once your EFC is calculated, the government and your college will help to make up the difference between how much your family can pay (the EFC) and how much the school costs to attend. This amount is your “financial need.”


Aid from the Government to Meet your Financial Need

The FAFSA doesn’t only determine your EFC, it also determines how much aid the federal government will give you. The government gives aid in several forms:

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  • Grants: This is an award that you don’t have to pay back. Government grants for low-income students are generally called Pell Grants and they range from $1 to $5,645 depending on your financial need.
  • Student Loans: This is money that the government pays your college, but that you will need to pay back to the government over time, usually starting after you graduate. Student loans include the Stafford Loan and the Perkins Loan.
  • Parent Loans: This is money that the government pays your college, but your parents will have to pay it back. The main parent loan is the federal PLUS loan.
  • Work-Study: This is a federal program where you can work on campus or sometimes in the local community and get paid by the government. The money you earn from your work-study job can be used to pay for your school expenses, such as books and supplies.

The FAFSA can be found online at You can head to the FAFSA website to familiarize yourself with the form.

State governments where you live sometimes also provide grants and loans, such as the Cal Grant for California residents. Check with your guidance counselor to see if your state provides any special financial aid and how to apply.


Aid from your College to Meet your Financial Need

Many colleges will also contribute aid to help meet your financial need. Some colleges just use the FAFSA to determine their award to you, but many use the CSS Profile or their own financial aid form. Forms like the CSS Profile ask more detailed questions about your family’s ability to afford your education. Some topics include how many loans they have taken out to pay for college for your siblings, if you own a home and how much it is worth, and other detailed questions. Based on the CSS Profile, your college can award grants and scholarships which are paid for by the college and that you do not need to repay.

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You can fill out the CSS Profile online at There is a fee to submit the CSS Profile in order to cover administrative costs. While it seems a little funny to pay money to get financial aid, the great financial aid you get as a result is well worth the small fee.

Unmet Need and Meeting All Demonstrated Need

Many elite private colleges say they guarantee to “meet all demonstrated need.” This means that the college will cover (in grants and loans) the difference between the total cost of attending the college and your government aid and EFC:

College Aid = Cost of Attendance – (Government Aid + EFC)

That way, you and your family are guaranteed to only have to pay the EFC, the amount the government has determined that your family is capable of affording.

Many colleges do not have this guarantee, and therefore you have what is called “unmet need.” Having unmet need means that you and your family have to pay more than the EFC. In other words, you and your family need to take out expensive private loans or make other sacrifices for you to attend college.

Unmet Need = Cost of Attendance – (Government Aid + EFC + College Aid)

Colleges don’t want you to have unmet need, it is simply that many colleges cannot afford to cover the financial need of students. Wherever you go to college, you will have the same Government Aid. However, the aid you receive from different colleges will vary. This difference in college aid is the key factor in determining the actual price tag of your education. Since low-income students have the most financial need, at colleges where there is no guarantee to meet all need, low-income students end up with the most unmet need.


The Federal Student Aid website is a good resource for more information. 

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