How College Financial Aid Works

Written by

Ray Grant Walden


August 14, 2014



Most full-time students currently enrolled in an institution of higher learning receive some type of financial aid from the federal government, state government, post-secondary institutions, corporations, and organizations.  

Overview of the Financial Aid System

The financial aid system is based on the notion that all students should have the ability to attend college no matter their financial background. While the federal government is willing to help underprivileged students continue their education, students and parents are still expected to contribute to paying college costs to the extent of their ability. Since most families are unable to cover all education costs, financial assistance is available.

Expected Family Contribution

The Expected Family Contribution (EFC) is the monetary sum a student and his or her family is expected to contribute to the costs of his or her education. The figure is determined by the organization awarding financial aid, usually the federal government or individual institutions of higher learning. Special formulas are often used to analyze a student’s financial circumstances compared with other student’s results. Usually, the formulas calculate based on income and assets. Here is the general formula:

 Parents adjusted income x (up to 47 percent)
Parents assets x (up to 5.65 percent)

+  Student’s income x (up to 50 percent)
Student’s assets x (20 percent) = EFC

Generally, the size of your family and the number of sibling you have attending college can add some flexibility to the final calculations. These factors are used to adjust the exact percentage assessed against income and assets.

Cost of Attendance

To ensure all students are treated equally, postsecondary institutions establish a standard “Cost of Attendance” applying to all students. All students with similar circumstances will be allotted the same allowance for tuition and fees, room and board, books and supplies, transportation, and additional expenses.

Free Application for Federal Student Aid (FAFSA)

To qualify for most types of financial aid, students must first submit the Free Application for Federal Student Aid (FAFSA). Students and families are advised to submit the FAFSA before March 15th prior to the fall academic term. The FAFSA collects financial information regarding the family’s income and assets and then forwards the information to the colleges and universities you are considering attending.

The Financial Aid Package

Once the financial aid eligibility of a particular student is established, a financial aid package is provided, which usually includes a combination of scholarships, grants, loans, and work-study programs. The amount of grants you receive is based on the number of units or hours the student is in enrolled in at the time of payment. Generally speaking, a student’s status is determined by the following chart:

  • Students enrolled in 12 or more units achieve full-time status,
  • Students enrolled in 9 to 11.5 unites are ¾ status
  • Half-time students are enrolled in 6 to 8.5 units or hours
  • Students enrolled in 5.5 units or less are considered half-time status

Grants like the Federal Pell Grant are usually dispersed twice a semester. Other grants and loans are paid out only once a semester, while Federal Work-Study is paid twice monthly.

Financial Aid Award

After the FAFSA has been processed, the school processing a student’s financial aid will send an award notification directly to the student. Typically, this notification will include important financial information, including the cost of attendance, Expected Family Contribution, total awards, resources, and the amount of unmet need for the academic year. Additionally, students may receive modified versions of the original award letter throughout the academic year documenting additional fees added to the cost of attendance, addition or deletion of certain awards, and semesters of enrollment.

Financial Aid Payment

Financial aid disbursement dates and deadlines are regulated by federal, state, and institutional policies and guidelines. Beware: payments may be adjusted if a student’s enrollment falls below below full-time status. Financial aid offices routinely check the status of students throughout the academic year. Outstanding institutional debt is usually deducted from financial aid payments.

To learn more, consider reading our article “Do You Qualify for Financial Aid?”.

Written by:  Ray Grant Walden

Ray Grant Walden attended American University College and now lives in Houston. He has enjoyed a very exciting career and has experience in a wide variety of professions, including college counseling.

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