Financial aid 101: What you need to know

Lee Shulman Bierer

The first question students ask is: “Will I be accepted at college X?”

The first question parents often ask is: “How can we afford to pay for college X?”

With college tuition prices escalating annually – faster than the cost-of-living index – discussing what funds are available for college is a conversation every family needs to have.

Today’s column is a basic financial aid primer.

Two Basic Types of Aid

Need-based aid: This is financial aid that is determined by your calculated ability to pay. Don’t assume that your family won’t qualify for financial aid.

  • Fill out the appropriate forms: the FAFSA ( and the CSS PROFILE ( These forms are not that complicated, and you don’t need to pay someone to complete them for you.
  • Grants: They are“free money,” i.e., money that doesn’t need to be paid back.
    • Pell Grants are awarded to undergraduate students in lower income brackets
    • State grants are sometimes available. Check the U.S. Department of Education list of state higher education commissions at
    • Institutional grants come directly from the colleges.
    • Grant money is almost always tax-free. This category also includes scholarships and may some have conditions attached to them, such as specific grade-point averages that need to be maintained to retain the scholarships.
  • Self-help: Work-study programs that provide part-time jobs for students on campus. The money earned is put toward either tuition or living expenses.
  • Student loans: There are a variety of options, including subsidized or unsubsidized loans, as well as student loans and parent loans (PLUS). Loans taken out by the student, rather than the parents, are often subsidized and guaranteed by state or the federal government. The rates for these loans are usually lower than regular unsecured loans, and in most cases no interest is charged as long as the student remains in school. Repayment usually doesn’t begin until a student graduates or leaves college.

Merit-based aid: This is aid based on academic abilities (grades and test scores), special talents or skills including arts, athletics, community service and leadership. These are generally scholarships that do not need to be repaid and come from private organizations, foundations, your state or are funded directly by the college.

Terms you need to know:

Cost of attendance (COA):  Cost of attendance includes: tuition, room and board, fees, books and personal expenses.

Just looking at the cost of tuition is misleading. Annual room and board fees can range from $8,746 at the University of North Carolina Asheville to $17,578 at New York University. Colleges tack on fees for student activities, printing, health insurance, borrowing of university-owned equipment, etc. Costs for books, supplies, personal expenses and travel can easily total over $2,500 per year.

College websites often detail the current cost of attendance on their financial aid pages. Financial aid professionals suggest anticipating a 5 percent annual increase in tuition and associated fees.

Expected Family Contribution (EFC): The FAFSA formula takes several factors into account to determine a family’s EFC, including annual income, certain assets, family size, parental age (the older the parent the larger the allocation towards retirement) and reasonable non-discretionary expenses, as well as the number of students in the household attending college currently and/or will be attending college in the near future.

Many colleges also request that families complete the CSS PROFILE. The profile considers: home ownership, K-12 private school tuition, regional cost-of-living differences, etc.

SMART TIP:  Don’t put money in your child’s name.

It’s important for parents and grandparents to understand that while putting money aside for college is a great thing, where you put it counts. Under the federal formula, your income will be assessed up to 47 percent. Your assets will be assessed up to 5.65 percent. However, your child’s income will be assessed at up to 50 percent, and your child’s assets will be assessed at 20 percent. That’s almost a 15 percent differential. When you’re talking about the big bucks for college, those numbers really add up.

Here’s an example: If you have $50,000 in your name, it would be assessed at $2,825. That is to say, the college would expect you to put as much as $2,825 of that money toward the first year of college. But, the same fund is in your child’s name would be assessed for $10,000.

Bierer is an independent college adviser based in Charlotte. Send questions to: