FAFSA And How the Financial Aid System Works

 In EFC, FInancial Aid, General

It’s financial aid time, and everyone should apply for financial aid, regardless of income. Even students from wealthy families can take advantage of a low-cost Unsubsidized Stafford Loan. The interest rate for this student loan, during the 2019-2020 academic year is 5.05%! Few families can afford to pass up the opportunity to borrow money for college at this low rate.

Most students that attend college can receive some form of financial assistance. Because there are many kinds of financial aid, this presents a lot of opportunity for students.

Here’s a brief outline of how the financial aid system works:

Rule of Thumb

Families with income less than $75,000 will most likely qualify for some form of need-based financial aid if the student attends a public college or university.
Families with income less than $175,000 will most likely qualify for some form of need-based financial aid if the student attends a private college or university.

How the Student’s Need is Calculated

Financial aid comes in the form of grants, scholarships (free money), loans, and college work-study. It is based on the student's financial need or the student‘s merit. This particular article covers only NEED-BASED AID.

To calculate the student’s financial need, the financial aid administrator of the college first establishes the cost of attendance; then he subtracts the Expected Family Contribution (EFC), or the amount the college expects the student and parents to contribute.

Cost of Attendance - Expected Family Contribution = Financial Need

Cost of Attendance (COA)

The COA used for the Financial Need calculation is considered the full cost of attendance, including:

  • Tuition
  • Room & Board
  • Books & Supplies
  • Transportation
  • Personal Expenses

Expected Family Contribution (EFC)

The EFC calculation is computed using the parents’ and student’s income and assets. It also includes the number of family members in the household, the number of students in the family attending college (excluding parents), the amount of taxes paid by the family and various living allowances that are available to the parents and student. The Expected Family Contribution remains constant, regardless of the Cost of Attendance (COA) of the colleges. As a result, the family’s financial need increases, as the price of the college increases.

Planning Tip: Normally, student loans make up the first $3,000 to $5,000 of Financial Need. The college will fill the remainder with work-study, grants, and scholarships; or leave the family with the obligation to pay the balance. It is essential to ask the college if they will fill 100% of the student’s need before the student applies for enrollment. Asking this question will prevent any misunderstanding that may result if the college only fills a portion of the student’s need and will give you the time to adjust your finances to cover the shortfall.

The Financial Aid Process

The first step of the financial aid process for every student and family is to determine their EFC. The EFC is determined by the Student and Parents’ completion of the Free Application for Federal Student Aid (FAFSA). There are three critical points that families must understand when completing the FAFSA financial aid form.

The first step of the financial aid process for every student and family is to determine their EFC. The data collected from the completion of the Free Application for Federal Student Aid (FAFSA) determines the EFC number. There are three critical points that families must understand when completing the FAFSA financial aid form.

  1. The FAFSA filing begins October 1 of the student’s senior year of high school. Furthermore, the student must submit the FAFSA each year he or she is seeking financial assistance.
  2. The Federal Methodology Formula that calculates the family’s EFC is based mainly on the parents’ and student’s income and assets.
  3. The EFC is directly related to the amount of financial assistance the student can receive.

The online FAFSA is sent to the Needs Analysis Center of the Department of Education once the family completes the application. The DOE calculates the family's EFC and reports the result to both the college(s) and the family using an online form called the Student Aid Report (SAR).

After the DOE submits the SAR to the college, the student receives a financial aid award letter from the college(s), typically in early to mid-April; which spells out the details of your financial aid package.

Understanding how the financial aid system works can save your family thousands of dollars and can keep debt down to a minimum. If you need the assistance of an experienced financial advisor to develop a college funding gameplan for your family and help you complete the FAFSA,  give me a call at 404-477-1772 or schedule a 20-Minute chat.

We may be able to save your family considerable money on your college expenses.

Have Questions About Your Situation?

Schedule a Free 20-Minute Strategy Call with Stuart

It’s FAFSA time, but first it’s vitally important that you understand how the financial aid process works! Don’t make errors that could cost you thousands of dollars in financial aid.  Learn More: 

Click to Tweet
Stuart Canzeri
Stuart is known as one on the industry experts in college funding and college financial planning. He serves as a registered fiduciary for his clients and has been in the financial and college planning arena for a combined 18 years. Stuart received a Bachelor of Arts in Communications from Tulane University, a MBA from Mercer University and completed his Certified Financial Planner certification from the University of Georgia’s Terry School of Business. He is Co-founder of Peachtree Financial Group, a boutique registered investment advisory firm and Managing Partner of Peachtree College Planning. He was appointed twice as a Commissioner at the Fulton County Housing Authority and still serves today.
Recent Posts
Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.

Start typing and press Enter to search