Whether you're college-bound or still in the early stages of finding a school, understanding the college financial aid world is probably an important part of your education.
That’s why we put together common financial aid lingo to help you decipher that financial aid offer letter.
Each year, the office of Federal Student Aid provides more than $150 billion in financial assistance to more than 13 million students—and the FAFSA is how they do it.
The federal financial aid application is filled out every year by current and prospective college students. By submitting your FAFSA, you can become eligible to receive grants, loans or work study to help fund your studies.
The FAFSA is free to submit and available online, and every college student should submit it every year. The deadline for the FAFSA varies, but some aid is first come, first served, so it’s best to be the early bird on this one.
Beginning with the 2017-2018 academic year, you’ll be able to submit your FAFSA as early as the October before your aid year using tax data from two years prior to your aid year.
After you’ve filled out your FAFSA, you’ll receive a Student Aid Report that will handily summarize all the information you provided in your FAFSA application. You can request your SAR online or through the mail. When you receive it, review it carefully to make sure all information is correct and complete. If you do find an error, you’ll need to correct and resubmit your FAFSA.
A school’s cost of attendance is the estimated full cost of completing one academic year as a full-time student at that institution. It includes everything from tuition and textbooks to room and board, personal living costs and transportation.
It’s important to note that your actual cost of attendance may differ from what your school projects, depending on factors like whether you accrue extra costs like lab fees or save money by renting textbooks instead of buying.
The Expected Family Contribution is a calculated dollar amount that helps determine a student’s eligibility for financial aid, based on information provided on financial aid application forms such as the FAFSA and PROFILE. If you fill out multiple forms, you may have multiple EFC numbers.
The formula for calculating EFC accounts for your family’s income, assets, benefits (like unemployment or Social Security), household size and the number of family members currently attending college.
Colleges subtract your EFC from the cost of attendance to calculate your financial need at their institution.
Net price is the amount that a student will ultimately pay out of pocket to attend an institution for one academic year, after subtracting any “gift aid” like scholarships and grants. Your net price is the sum of your Expected Family Contribution, “self-help” aid such as work opportunities and loans that must be earned or paid back, and any unmet financial need. We have a Net Price Calculator you can use.
A 529 plan is a tax-advantaged savings plan designed specifically to let you save for future educational costs. These plans vary slightly by state, but across the board earnings from a 529 are not subject to federal tax if those dollars are used for qualified college or other post-secondary education expenses, such as tuition, textbooks, room and board and even laptops.
The American Opportunity Tax Credit is a credit of up to $2,500 for qualified college and post-secondary education expenses for an eligible taxpaying student or a taxpayer claiming the student as a dependent. To be eligible, the student must be enrolled at least half-time for one academic period beginning in the tax year, and still be in his or her first four years of higher education.