10 Financial Aid Terms Every Parent Should Understand

Heading off to college is exciting (maybe a little more for the student than the parents).  On the other hand, wondering how you’re going to pay for the next four or so years of your life can be pretty daunting. Here are 10 terms that can help parents navigate the confusion of financial aid:

  1. FAFSA (Free Application for Federal Student Aid): The primary form students and parents submit to apply for financial aid.
  2. Expected Family Contribution: This is a term used in the college financial aid process in the United States to determine an applicant’s eligibility for need-based federal student aid, and in many cases, state and college aid. The expected family contribution (or EFC) is an estimate of the parents’ and/or student’s ability to contribute to college expenses. This number is determined by the FAFSA.  (Note: the EFC will be replaced by the Student Aid Index January 1, 2022)
  3. Demonstrated need: This is the difference between your EFC and the cost of attendance of the college. In other words, it’s what you need in order to attend college that you or your family can’t afford to pay.
  4. CSS Profile: A form required by 400 colleges and universities to collect additional financial information in order to award non-federal aid.
  5. Net price: This is the price of college minus tuition discounts, scholarships, grants, etc. This is usually far less than the advertised price for private colleges.
  6. Need-aware admission: Need-aware is a term used to describe colleges who consider applicants’ ability to pay when accepting or denying their application to attend.
  7. Merit Based Aid: Money awarded to students based on their academic profile, achievements, etc...
  8. Need Based Aid: Money awarded to students to help pay for college and reduce the demonstrated need.
  9. Education Tax Benefits: These are tax-deductible benefits you can receive when families file taxes, based on what you paid for college. Some examples: The Hope Scholarship tax credit, Lifetime Learning tax credit and the student loan interest deduction.
  10. Direct PLUS loan: Federal loans available to parents or to graduate/professional students. The interest rate is higher than other loans available to undergraduate students, and borrowing limits are much higher. They’re also frequently called Parent PLUS loans, and they’re the only federal student loans that require a credit check.


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