The objective of college financial aid programs is to ensure that the financial aid that is being made available with tax payer dollars will end up benefiting those who truly need it. For the most part, financial assistance for college is given out based on need. There is a standard formula used by colleges and universities to determine whether or not students will qualify for various forms of financial aid such as grants, loans, etc. The federal government requires all colleges providing assistance to use the standard formula.

The Expected Family Contribution (EFC) is the amount of money that you and your family are expected to contribute towards the cost of your education per year. The standard formula mentioned above calculates your family’s EFC taking income, assets and expenses into calculation. Because the formula each school uses is the same your EFC should remain the same from school to school. You then subtract your EFC from the total cost of attending their college and that number is the estimated “need”. So the amount of need will vary from school to school based on the cost of tuition.

The standard formula also take into consideration the family’s equity in their home, the value of any family-owned businesses, savings, stock holdings, and other assets that might be sources of funds for education when determining a family’s or student’s need. And if any brothers and sisters of the student are in college and requiring the family’s financial support that will be taken into consideration as well. Remember that the lower your EFC is the higher your need will be and the more financial aid you can receive.
Merit-based financial assistance is money that’s given out to students who perform exceptionally well. Many colleges are against merit-based financial aid and therefore only provide need-based assistance. The argument for this is that merit-based assistance takes money away from students who truly need it and would have no chance of going to college without financial aid. To determine your eligibility for need-based aid simply subtract your Expected Family Contribution from the total cost of attending a specific college. The total cost is more than just the cost of tuition – it’s the cost of all related expenses such as books, supplies and room and board if you live on campus. If you don’t live on campus and you’ll be commuting to school then the cost of transportation is included as well.

If your family owns a home, has savings and assets, etc. it doesn’t mean that you won’t qualify for financial aid. It is a very common misconception that financial aid will only be offered to you when your family’s resources are completely used up. That is not the case. You will still most likely qualify for assistance because income is the major factor in determining the EFC. Only 6% of the parents’ assets are included in any given year.

Don’t decide not to explore a university or college just because it’s expensive. Colleges and universities that seem more expensive may actually have more money available to give towards financial aid, so you should always look into every college that interests you based on the assumption that you will receive financial aid if you apply for it. There are no guarantees that the college will be able to meet your need for financial assistance but it’s better to assume the money is available. Some colleges will pay the full need of some of the students who apply and other colleges will pay only a part of the need of every student who applies. It just depends on the college and there are never any guarantees.

When determining your Expected Family Contribution (the amount you are expected to pay) there are three basic family income groups… Low income families, middle income families, and wealthy families. You are definitely eligible for college financial assistance if your family’s income is under $25,000. If you are a parent and you consider yourself to be low income it is a good idea to explain to your children that they will be able to qualify for financial aid so that they don’t go through high school assuming that they can’t afford to go to college.

It’s important for middle income families to grasp where they stand in comparison to other families when applying for financial aid. This is especially true because a family’s household income isn’t necessarily the most telling number. The number of siblings in the family, number of children going to college, unusual expenses, savings and other assets CAN (not necessarily will be) taken into consideration. Nowadays 3 out of 5 families in the U.S. are considered middle income with incomes between $25,000 and $70,000. They will qualify for financial assistance from most colleges, but they are generally required to make a fairly large EFC.

20 percent of the population in the United States is considered “wealthy” and have household incomes above $70,000. Obviously these families are in the best position to make the largest EFC and for that reason it’s important to start planning and saving for college as early as possible if you fall in that category.