What is Financial Aid and How do You Get Your Fair Share for College?

Looking for financial aid for college? Wondering where to start?

There are basically 3 buckets of money for college aid today. First is "need aid." What’s that? Well, that comes from the federal government and the state, and there are billions of dollars available.

The next is merit aid. What’s that? That comes from college endowments. That’s the money that’s been put aside through their alumni and through various contributors to the funds. Over 75 colleges and universities have endowments in excess of a billion dollars.

And then there are private scholarships. Private scholarships tend to be where a lot of people look for college aid, but the fact is, it is the smallest bucket of the three.

So let’s concentrate on the largest college aid bucket – government money. Here’s the good news: each year there are billions of dollars available to you as a US tax payer, and you’re entitled to your share!

Here’s how it works: the people who understand the system the most get the most financial aid for college. In fact, most families overpay for college because they don’t understand the system. The way the system works is the government expects you to fill out one of their forms, before they give you any money. The government form for college financial aid is called FAFSA. That stands for Free Application for Federal Student Aid.

The form basically collects a bunch of financial information – your income, your assets, your age, how many are in your household, etc. – and then calculates a number, and that’s what the government expects you to pay for college. That’s called your EFC, or Expected Family Contribution. Normally, it’s way higher than people expect.

Some people ask me, "Is that for all four years?" No, that’s for one year. The good news is, there are ways for you to lower that number, and get much more financial aid for college. Also, the more children a family has in college at the same time, the lower the EFC.

What is EFC and How Does It Affect College Aid?

Expected family contribution is what the government expects you to pay for one child to go to college for one year.

One thing you should remember: the kids’ assets and income count against you more heavily, so you don’t want too much money in the kids’ names.

Now, in order to understand what’s going on here, we have to know that EFC is part of a larger formula. The larger formula is what’s determining how much financial aid for college you’re actually going to get. So if we take the cost of attendance at any college, and deduct the EFC, that’s going to give you your financial aid "need."

Let’s say you’re looking at a college whose cost of attendance is $40,000 and your EFC is $15,000. Your "need" is going to be $25,000 a year. Well, just because your need is $25,000 doesn’t mean the college will give you $25,000. Every school has a policy and track record for the percentage of aid they meet.

These days, state schools often don’t meet more than 50% of a family’s need. That’s because states are strapped for cash. Private schools, on the other hand, tend to give a higher percentage of demonstrated need. The top private schools, such as Princeton, Vanderbilt and Stanford, often will meet 100% of your need.