When students apply for financial aid to fund their college educations, parents and children alike are often introduced to terms they’d never heard of before. To provide clarity, here are definitions of 13 important financial aid terms for parents, as well as information about how students can prioritize financing a college education in ways that go beyond federal student loans.
Financial Aid Terminology for Parents
1. College Grants
Grants are used to help fund a person’s college education but, unlike loans, they typically don’t need to be paid back. They are often based upon a person’s financial need, with grants available at a federal and state level. Grants typically come with certain criteria that must be met, such as maintaining a predetermined grade point average. Private and public organizations can also provide grants to qualifying students. Here is information about college grants from the U.S. Department of Education .
2. Cost of Attendance (COA)
A student’s cost of attendance (COA) is the sum of all costs to attend college in a given year. This includes tuition, room and board, book allowances, loan fees, costs associated with studying abroad, with managing a disability, and more.
This is different from the invoice that a college may send a student, being more comprehensive than that. The COA figure is used to determine how much financial aid a student may be eligible to receive; anyone receiving a form of financial assistance would not be paying the full COA.
3. Expected Family Contribution (EFC)
The EFC is a metric that’s calculated through a formally established formula to determine the financial strength of the family of a student who is applying for federal financial aid. This formula uses a family’s income, both taxed and untaxed, as well as their assets, Social Security benefits, unemployment benefits, and more in its calculation. The family size and how many of its members will be attending college that year is also considered by the formula.
This figure is used by college financial aid departments to determine how much financial aid a student can receive at their school. The EFC is not a figure that shares how much someone would need to pay to attend college. Instead, it provides insights for the college to let them know a student’s aid eligibility.
4. Federal Application for Federal Student Aid (FAFSA)
FAFSA® is the official government form that students must fill out to be eligible for federal student loans and grants, with dependent students also needing to include financial information about the family. (Here’s more about a student’s independent or dependent status.)
Filling the FAFSA out does not guarantee that a student will receive aid but it must be completed annually for that student to be considered for the upcoming college year. Information provided will be used to calculate a student’s expected family contribution (see that definition above). Here is additional information about completing a FAFSA application.
5. Financial Aid Award Letter
Other terms for this letter include a merit letter or an award letter. It can also be referred to as a financial aid offer or financial aid package. When a student fills out a FAFSA, each college that accepts that student to its school will be sent one of these letters. Information included will typically be a student’s cost of attendance, expected family contribution, awarded grants and scholarships, work-study details, and federal student loans. Each of these terms is defined in this guide for parents. Many schools now provide this information electronically.
6. Merit-Based Assistance
Merit-based assistance is the type that’s based upon the abilities and accomplishments of a student. This can include a student’s grade point average, athletic achievements, or other attribute, either singularly or in combination. This assistance does not typically take financial need into account when deciding who will receive it and in what amounts. Merit-based aid is often given from the college directly to the student.
7. Need-Based Assistance
Need-based assistance is provided to students based upon their financial need. This type of financial aid is provided by federal and state governments, as well as through colleges and other organizations. The three types of federally granted need-based financial aid includes the following: Pell Grants, work-study programs, and subsidized Direct student loans. Each of these is defined in this post.
To qualify for federal need-based aid, a student must fill out the FAFSA, and colleges may require additional information for non-federal aid. Simply applying for need-based aid does not mean a student will receive it; applying early can potentially increase a student’s chances of receiving aid.
8. Parent Loans/Direct PLUS Loans
Parents can borrow funds to help their children pay their college expenses, including through federal loans called Direct PLUS Loans. When this type of loan is provided to a parent borrower, it’s often called a Parent PLUS Loan. Not all schools participate in the Direct Loan Program, so students should check with their colleges of choice to see if this type of funding is of interest. Private parent loans are also available through lenders, including SoFi.
Note that graduate or professional students are also eligible to borrow Direct PLUS Loans.
9. Pell Grants
A Pell Grant is a federal form of aid that is solely need based. This is the biggest source of federal grants and, to receive these funds, a student must fill out the FAFSA and meet eligibility requirements. Because this is a grant, rather than a loan, it typically does not need to be repaid.
A scholarship is a type of funding awarded to students to help them pay for a college education. They are available through government sources, both federal and state, as well as through colleges, private and public organizations, and more.
Unlike loans, scholarships typically don’t need to be repaid. They can be need-based or merit-based (or a combination of the two). There is a broad range of scholarship possibilities, so it can be worthwhile for the student to research options and apply for ones that seem to be a good match.
11. Student Aid Report (SAR)
A SAR provides a student with information about their federal student loan eligibility and summarizes answers provided on the FAFSA application. For students who complete their FAFSA, the SAR should contain the Expected Family Contribution and a four-digit Data Release Number (DRN); the DRN will come into play if the student allows their college to change information on their FAFSA. Students may be asked to verify information. If so, here’s what they should do . Colleges will use this information to determine aid eligibility for the student.
12. Subsidized Versus Unsubsidized Assistance
Federal student aid can include both Direct Subsidized Loans and Direct Unsubsidized Loans (some refer to these as Stafford Loans or Stafford Direct Loans). Subsidized loans are for students with demonstrated financial need, with their college determining the amount available for each qualifying student. The amount can’t exceed that student’s financial need. The U.S. Department of Education pays the interest for students who receive subsidized loans and are in school at least half time up through the six-month period after the student leaves school (the “grace period”) and during deferment periods.
Students do not need to demonstrate financial need to qualify for unsubsidized loans but they are responsible for paying the interest.
The federal government’s work-study program provides college students who have demonstrable financial need with part-time jobs to help them earn money for their college education. The program attempts to match a student with work in their area of study or in jobs that provide community service benefits. Students who are interested in this program should check with their colleges of choice to see if they participate in this program.
Overall College Financial Aid Plan
In general, it helps to prioritize how to get funding for college. Students and parents may have money to contribute to help cover the expenses, with scholarships and grants reducing the bill in ways that typically don’t need paid back. Work-study opportunities can also help students earn money to cover some expenses while in college.
Next on the prioritization list can be subsidized loans where qualifying students aren’t responsible for paying the interest up through six months after leaving school. By taking a look a what expenses remain, it can then make sense to use unsubsidized loans—and, if a balance will still be due, that’s when it may make sense to look at private student loans.
Private Student Loans at SoFi
With SoFi’s private student loans, students can quickly and easily find out if they prequalify and at what rates. Adding a cosigner is also quick and easy, just a few clicks away.
Students can then select from four repayment plans, including a deferred plan with no payments for six months after finishing school; an interest-only plan where students pay interest while in school to help reduce the overall cost of the loan; a partial payment plan, where students make low payments each month while in school, to help reduce the overall cost; and the immediate plan where principal and interest is paid right away. While this last plan has the highest payments during school years, borrowers who choose this plan will have the lowest overall repayment cost.
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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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