Financial Aid Glossary – part II

Last week I started out the Financial Aid Glossary with an A-C listing thinking I would divide this up into four separate columns, but then I thought let’s just share it all this week and then we can move onto some more interesting topics including campus visits, scholarships and ideas for summer.

So here goes — D- W:

Deferment of a loan: A period of postponement during which the repayment of loan principal is suspended because the borrower meets one or more deferment requirements.

Demonstrated need: The difference between your Expected Family Contribution (EFC) (see below) and the total cost of attendance.

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.

Expected Family Contribution (EFC): A formula that estimates how much of a college’s price tag you can, in theory at least, afford to pay. The FAFSA formula takes several factors into account to determine a family’s EFC: annual income, certain assets, family size, parental age (the older the parent the larger the allocation towards retirement), 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.

The EFC is a need-analysis, i.e., the formula used to determine a student’s need for financial assistance for college expenses. Your EFC will be calculated once you have completed the FAFSA. It’s important to note that most colleges do not make up the difference between your EFC and the Cost of Attendance with grants. Loans are frequently part of the financial package. If your EFC is greater than the amount you have saved or greater than what you had planned to spend, you have lots of company.

FAFSA:  Free Application for Federal Student Aid, Everyone, repeat, everyone should complete this form. It is simple and you don’t need to hire anyone to fill it out for you. The FAFSA will ask questions about your income and assets, not including retirement plans; your child’s income and assets in their name; the size of your household and the number of children in the household attending college.

FAFSA Filling this out allows you to begin exploring financial aid opportunities such as grants and scholarships before a student’s senior year in high school. After completing these forms, you can transition to the FAFSA form, and it will automatically populate with your information.

Federal Direct Loan Programs: Four types of loans to student and parent borrowers:

  1. Subsidized Stafford loans: Federally financed low-interest loans are only for undergraduate students and are awarded based on financial need. Interest doesn’t start accruing until after leaving college. Also known as a direct subsidized loan, these federal loans have slightly better terms, than the similar-sounding unsubsidized Stafford loans.
  2. Unsubsidized Stafford loans:Also known as a direct unsubsidized loan, these federal loans are available to undergraduate or graduate students, and there is no financial need requirement, so anyone can use them. Historically, interest rates on unsubsidized loans were slightly higher than those for subsidized loans, though the rates have been equal in recent years. Still, unlike subsidized loans, interest on unsubsidized loans start adding up from the day you take out the loan.
  3. PLUS Loans: for parents borrowing for the education of their dependents
  4. Consolidation Loans: loans arranged through the US Department of Education’s Direct Loan Servicing Center; designed to combine Title IV education loans into a single loan with one monthly payment.

Grants/Gift/Grant Aid/Scholarships:  Financial aid, generally in the form of a grant or scholarship, that the student is not required to repay. (See Scholarships)

Merit aid/non-need-based aid: This is money awarded without regard to financial need. It can be based on academic achievement grades and test scores),, artistic or athletic abilities, leadership skills, community service or any other characteristics. These are generally scholarships that do not need to be repaid and come from private organizations, foundations, your state or funded directly by the college or university.

Need-aware admission: A policy in which colleges consider applicants’ ability to pay when admitting or rejecting them. Few colleges are completely need-aware or need-blind (see below).

Need-based aid: Money awarded to students when their family can’t afford to pay the full price. Don’t assume that your family won’t qualify for financial aid. Fill out the appropriate forms: the FAFSA (  and the CSS PROFILE ( You may be surprised and find out you are eligible for aid. Need-based aid includes:

  • Grants: from the Federal government, (Pell Grants – awarded to undergraduate students in lower income brackets); your State (check the U.S. Department of Education list of state higher education commissions –; and directly from the college.
  • Loans: see Federal Direct Loan programs above.
  • Self-help: Work-study programs through the college and/or loans from the Federal Government, your state or directly from the college.

Need-blind admission: A policy in which students are accepted without regard to their financial need. Unless a college is extremely wealthy and generous with its aid, though, this can mean that a student may be accepted but not have enough money to attend.

Net Price: The amount you’ll actually pay for a college after tuition discounts, scholarships, and grants are accounted for. For private colleges, this is usually far less that the advertised price. Colleges will tell you that their Net Price is the Cost of Attendance minus Grants or Scholarships AND Loans and so it makes the price more attractive. However, loans, as we know, must be repaid, so a more accurate Net Price is a simple Cost of Attendance minus Grants or Scholarships.

Net Price Calculator

A Net Price Calculator is on every college website – typically under either the Financial Aid or Admissions tabs. The Net Price Calculator is a relatively new planning tool and although it is not perfect, it will provide families with a fairly reliable estimate of what your net price will be at each college or university on your list.

Pell Grant:  A need-based grant program for undergraduate students

Perkins Loan: Federal loans that are reserved for low-income students. The interest rate is relatively low and the time before a first payment is due is longer than with other loan programs.

Prepaid tuition plan: A college savings plan guaranteed to increase in value at the same rate as college tuition.

Renewal FAFSA: Version of the FAFSA that students may use if they applied for federal financial aid the previous award year.

Satisfactory academic progress (SAP): To be eligible to receive federal student aid, a student must maintain, based on the school’s written standard, satisfactory academic progress toward a degree or certificate.

Scholarships/Grants (see Grant Aid): Funds used to pay for higher education that do not have to be repaid. Scholarships may be awarded based on any number of criteria such as academics, achievements, hobbies, talents, affiliations with various groups, or career aspirations. Scholarships are usually awarded based on certain characteristics or qualities of the student and can be merit-based or need-based. Colleges or individual departments offer scholarships, as do thousands of nonprofit groups, businesses, and other organizations.

Simplified needs test: The basis on which only the first part of the FAFSA form is required. Asset information is not required if the parents of a dependent student have income of less than $50,000.

Student Aid Report (SAR): A report sent to a student by the federal government summarizing financial and other information reported on the FAFSA, includes the Expected Family Contribution (EFC).

Tax credit: The amount subtracted from your federal income taxes dollar-for-dollar for the cost of education. Taxes must be owed for the given tax year, and a tax return must be filed to receive any tax credit.

Uniform Gifts to Minors Act (UMGA): Legislation that introduced a tax-effective manner of transferring property to minors without the complications of trusts or guardianship restrictions.

Work study: A program in which students are given a job on campus to help pay for college bills. There’s the Federal Work Study program and some colleges also have their own programs.

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