You’ve taken the SAT or ACT (or both). You’ve researched a list of safety, target, and reach schools. You’ve written what seems like 100 college essays, and nailed down several letters of recommendation. You think you finally have a minute to take a breather, and then you remember: you have to figure out how to pay for all of this!
Most students know that financial aid is an option, but the whole financial aid application process can be confusing. What counts as financial aid? Where do you get it? What’s the typical application process like? How much can you get? It’s enough to make your head spin, especially if you don’t have much guidance on the subject.
In this post, I’ll answer all those questions (and more) to start you off on the right foot. Heading off to college should be an exciting new adventure, not a stressful financial burden—this guide will help you get all the financial aid you need to make this upcoming college transition a pleasant one.
Before we jump into that, though, I'll talk more generally about college expenses and overarching financial aid strategy.
Paying for College: The Basics
So you're about ready to head to college—or at least, you're thinking about whether you can afford it. How does the cost of your education and the financial aid application process factor into your experiences at school and beyond?
Every year that you attend school—whether you're getting a BA, a Master's, or a professional degree—costs a certain amount of money. The biggest expenses associated with attending college include tuition, room, and board.
If you don't cover your tuition costs, you won't be able to register for classes or actually attend school. If you can't afford living expenses associated with attending school (room, board, other personal expenses), you can't actually be present on campus to attend classes. Ultimately, all of these costs need to be covered every year or you won't be able to attend college.
To learn more about how much money it takes to get an education, read our guide on the explicit and hidden costs of college.
Where Does Financial Aid Come In?
For many students, there will be a difference between what college actually costs and what they can afford to pay. For every year that you anticipate this deficit, you apply for financial aid for your school to cover as much of this cost as you can. In general, this process includes submitting a federal financial aid application.
Your school receives the information from this application and puts together a financial aid package, which could include federal aid and/or school-based aid. Your grants and loans (if you choose to accept them) will be laid out for you in this financial aid offer. You're then able to make a decision about whether the remaining difference in cost, after taking aid into account, is something that you can afford to pay.
If you choose to accept an offer from a particular school, and there is a difference between the aid offered and total college costs, it is your responsibility to pay the remaining amount. You may not have to pay it all up front—some schools offer payment plans throughout the semester—but if you do not make timely payments, you will not be allowed to register for classes, and you won't receive any college credits. Some students use family savings, private loans, student jobs, or a combination thereof to cover these costs.
Worrying about paying for college can be an enormous burden—often, students don't feel prepared or informed enough to make such big financial decisions. If you're in this boat, rest assured that with some good intel and a little experience you'll be able to navigate financial aid as well as anyone else.
When I entered college as a freshman, I felt pretty lost when it came to understanding financial aid—I was unfamiliar with a lot of the language, and I wasn't sure where to get good objective advice. I came out on the other side, and I'm happy to say it's not as scary as it first seems.
So let's get started!
What Is Financial Aid?
The term "financial aid" is thrown around as a monolithic term that seems to cover anything that helps pay for college. There are different types of financial aid, though, and they're not all created equal—they come from different sources and with different "catches."
Types of Financial Aid
There are several types of financial aid available—some are better than others. Here, I'll go over all the major types of financial aid, their perks, and their drawbacks.
Grants are lovely little monetary awards that you don’t have to pay back. For this reason, they are awesome—if you get a grant, you are literally getting free money.
The catch? They’re usually based on your financial need. Free money is generally hard to come by, so eligibility criteria for grants tend to be stricter than for loans.
Student loans can be important financial assets, as long as you can support the monthly payments after graduation.
A loan is a sum of money that is given to you when you need it (i.e. when you need to make tuition, room, or board payments) which you pay back after graduation. You also pay back an additional percentage of money, known as interest.
Loans can be really helpful, but also a burden post-graduation if you take on a lot of student debt. Some loans are better than others: for example, loans that are subsidized or have low-interest rates, subsidized loans are generally preferable because you end up paying less in the long run. To learn more about these types of loans, read our guides to the Perkins and Direct Subsidized loan programs.
Scholarships, like grants, are sums of money that are awarded to you to help pay for school. They're a bit different from grants and loans in a few important ways, so I won't spend much time addressing them in this post.
First, they're not reliable. Most scholarships are very competitive, which means that students shouldn’t expect to be able to pay for the bulk of college expenses with scholarship awards.
Second, they have widely varying eligibility criteria, award amounts, and application processes—grants and loans are much more standardized in these respects. In sum, scholarships are awesome bonuses if you get them, but the meat and potatoes of financial aid are grants and loans.
Financial Aid Sources
Financial aid can come from a variety of sources. Your funding source can affect your type of aid, your award amount, your eligibility criteria, and the application process. Here, I'll address the three main sources of student aid: federal, institutional, and private. I'll also briefly address some loan basics, like what to expect in terms of student loan payments and affordability.
Federal student aid is financial aid that is sponsored or subsidized by the US federal government. It's widely available and pretty easy to apply for—there's one application for all federal aid programs called, aptly, the Free Application for Federal Student Aid (FAFSA). The FAFSA is also useful for more than just federal aid—I'll explain why later on in the post. Some federal aid programs include the Pell Grant, Perkins loan, Stafford loan, and Direct Subsidized and Unsubsidized loans.
Eligibility criteria for most federal aid programs tend to be very clear—if you meet the criteria, you should get the aid award. Interest rates on federal loans are also very competitive and tend to be lower than those on private loans (lower interest rates = less money you shell out in the long run).
Colleges will sometimes have their own financial aid programs. Some schools even claim to meet all financial need—basically, everything that your family can’t afford to pay. Generally, the better a school’s endowment, the better its financial aid program.
Much of the institutional aid that's awarded is in the form of grants, which are primarily need-based. Some merit-based scholarships are given out by some institutions to entice particularly competitive students. Usually, schools don't serve as loan lenders (with a notable exception being in the case of the Perkins loan program).
Schools use information generated from your FAFSA to determine what (if any) financial aid you'll get from the institution, in addition to the federal aid you're eligible for. Schools may also use an application called the CSS/Financial Aid PROFILE to award nonfederal financial aid. I'll talk more about the PROFILE in the section on the federal aid application process.
When people discuss private aid sources, they're usually referring to banks that are funding private loans. This is the third level of financial aid: if grants and low-interest federal loans don’t cover enough of your expenses, you can get a private loan to make up the difference. The terms on these loans usually aren’t as good as those on federal loans, but you can get decent interest rates if you (or the person who's signing on the loan) have good credit.
Loans: How Much Should You Take Out?
Student loan debt is a big concern for current college students and recent graduates alike. To avoid taking on debt that you can't afford to pay back, you must consider loan amounts, interest rates, and repayment plans to determine what you can handle. What amount of debt is worth the education you'll be receiving?
To answer this question as effectively and as accurately as possible, consider the following: taking your future career plans and future income into account, what do you anticipate being able to afford in terms of monthly loan payments? Be as realistic as possible.
Now, monthly loan payment amounts will vary based on things like interest rates and whether the loan is subsidized or unsubsidized. What you can actually afford to pay will also depend on factors like your income, cost of living, and how much you want to save and spend. Even though all of these factors are (probably) currently unknowable, this chart lays out some general rules about loan payments and affordability:
Total Student Loan Debt
Minimum Annual Income Needed to Afford Monthly Payment
$7,320 - $9,150
$14,640 - $18,300
$22,080 - $27,600
$29,400 - $36,750
$36,720 - $45,900
$73,440 - $91,800
$146,660 - $183,300
The general rule of thumb is that you should aim for 10% of your income to be spent on student loans. You can certainly live frugally and pay your loans with 30% of your income, but just remember about 30% of your income goes to taxes, another 30% will go to rent, and you'll need to budget for living expenses too.
The Financial Aid Application Process
The process is so much more manageable if we break it down step by step.
So you have a good idea of the financial aid basics—you know all about the types of financial aid and their various sources. The next step? Actually learning how to apply for financial aid!
The process and timeline will be a bit different for everyone, but here I’ll focus on the process for (1) first-time college freshmen who are (2) proactive about applying for financial aid. It’s generally better to apply earlier rather than later for financial aid programs (so, don’t wait until application deadlines if you can help it) because some programs run out of funds. One notable example of a program with limited funds is the Perkins loan program.
You generally don’t have to worry about the financial aid application process until the bulk of your college application work is done. Here, I’ll outline a comprehensive financial aid process in chronological order of applications you should complete—the CSS/Financial Aid Profile is listed first because you might have to complete it while working on some college apps (unfortunately).
Step 1: The CSS/Financial Aid PROFILE
The CSS/Financial Aid PROFILE is an application for nonfederal financial aid used by almost 400 different colleges and scholarship programs. Even if you don’t think you’ll apply to one of these colleges or programs, it may be wise to fill it out, so you don’t preemptively limit your funding options. Check out the list of participating programs before deciding not to complete it—you might find a program or school you're interested in!
If you’re applying to any of the participating schools (or scholarships), they’ll have their own deadlines for submitting the PROFILE. It’s very important that you meet this deadline if you want to be considered eligible for institutional financial aid. Some schools may ask for it around the time college apps are due.
Submitting the PROFILE
If you plan on completing the PROFILE, you’ll need to enter detailed student and parent financial information. Gather the following paperwork for both you and your parents to expedite the application process:
- Current and previous years' tax returns
- W-2 forms and other records of current year income
- Records of untaxed income and benefits for current and previous tax years
- Current bank statements
- Records of savings, stocks, bonds, trusts, etc.
There are fees associated with this application—one fee to actually submit it (which includes a single school report), and a $25 fee to generate reports for additional schools. There are fee waivers available for low-income students.
Step 2: The FAFSA
The FAFSA: Perhaps the most important part of the financial aid process.
The FAFSA is the Free Application for Federal Student Aid. Like I mentioned earlier, this one application will open up a lot of potential aid opportunities.
The FAFSA opens up October 1 each year for the next academic year (for example, if you’re starting college in the fall of 2020, you can submit your FAFSA on October 1, 2019, at the earliest).
A few days after you submit your application, you’ll get what’s called a SAR (student aid report) outlining different types of federal aid that you’re eligible for.
If you’re interested in the Perkins loan, you’d have to be offered the loan directly through your school. Many schools use the information generated from the FASFA to award their own aid, especially if they don’t use the CSS/Financial Aid PROFILE.
So when should you actually submit your FAFSA? Even though the deadline is pretty late (e.g. deadline for 2019-2020 academic year is June 30, 2020) apply as close to October 1 as possible. Some programs are first-come, first-serve, so if you apply early, you won’t end up losing out on any potential funding opportunities.
Submitting the FAFSA
To complete the application, you’ll need detailed financial information for both yourself and your parents, including:
- W-2 forms
- Tax returns
- Records of untaxed income and benefits
The application itself should take 2-3 hours, and can be submitted online. It should take about three days to get your "results"—the student aid report outlining your federal aid eligibility. You can even estimate your eligibility before you apply using the FAFSA4caster.
For detailed information on how to submit a FAFSA, check out our Pell Grant guide.
Step 3: The Financial Aid Award Letter
After you’ve been admitted to a college, the school will put together a financial aid award letter—if you noted that you want financial aid, that is. You will not have to accept or reject any offer of admission until you’ve been able to go over a school’s financial aid package. You can use the award amounts to calculate your net cost, or what you have to pay out of pocket to attend that school.
If there are loans offered on your financial aid letter, you don’t have to accept any that you’re not comfortable with. You tell your financial aid office what awards you want to take (pro tip: take all the grants and scholarships) and what awards you don’t.
Calculating Your Net Cost
- Figure out the school’s CoA (Cost of Attendance). This figure includes tuition, fees, books, transportation, room, and board. If it's not listed on the financial aid letter, turn to Google or the financial aid office. Learn more about expenses in our guide on what college really costs.
- Subtract any grants and scholarships listed on the financial aid package from your CoA. This is free money that your school and/or government is awarding you.
- The figure you have right now is your out-of-pocket cost. If this isn't affordable, this isn't necessarily what you have to pay right now to attend this school.
- Subtract any federal loans offered from the out-of-pocket cost. These loans tend to have low-interest rates and good repayment terms.
- Subtract any work-study award amounts. Many students have jobs during the school year to help cover some college expenses. Work study helps facilitate the job search.
- The remaining amount is what you have to pay to attend school for one year. If this amount is still not manageable, and you're comfortable with the idea of taking out more loans, you can consider private loans to cover some of the balance.
How Much Aid Can You Get?
Let's figure out how much aid you can get your hands on.
This is the real question, right? If you're going to go through all the trouble of applying for financial aid, you want the results to be worth it in the end.
The amount of aid you can get depends on two main factors:
#1: Your financial need, and
#2: Where you go to school
Students with very low family incomes who attend schools with good financial aid programs can get all of their financial need covered—with all grants, no loans. Harvard, for example, expects no family contributions from families who make less than 60k a year, although they still expect students to contribute a small amount via a student job. There are other schools that claim to meet all students’ unmet need.
If you have high financial need but choose a school with a less generous financial aid program, you might be expected to pay a lot out of pocket. State schools, in particular, tend to have much higher sticker prices for out-of-state residents, so even if you get the maximum amount of federal Pell grant money ($5,500) you could be on the hook for a very large sum of money.
If you don’t have much financial need, you can still get financial aid through schools with good programs. Harvard, again as an example, gives some sort of financial aid to about 70% of its students. You might not be eligible for many grants, but you could potentially be eligible for low-interest government loans, like the Direct Subsidized, Unsubsidized, and PLUS programs- they have less strict eligibility criteria.
What If You Don't Receive Enough Financial Aid?
Sometimes, even though students do everything right, they still end up stuck with a price that they or their families just can’t afford. Here are some steps you can take to close the gap between what you can afford and what you owe.
Check in With the Financial Aid Office
See if they can work with you on your financial aid package. Don’t treat it like a bidding war—for example, going to a school with another college’s financial aid package and demanding they match it won’t generally fly. Tell them that you’re grateful for the package, but as is, your family can’t afford it.
Take this opportunity to explain any extenuating circumstances or hardships that make paying for college difficult. Bring concrete numbers and calculations to back up your claims, and be prepared to discuss what you can afford.
Apply to Scholarships
Ideally, you’d start looking at scholarship programs early on in your junior year. Apply to scholarships as a Hail Mary or backup plan—don’t count on any scholarship earnings before you’ve actually earned them. With that being said, scholarships (even small ones) can help make college more affordable. Ronald McDonald, Gates Scholars, and Hispanic Scholarship Fund awards are good places to start.
Consider Schools with Better Aid Packages
Sometimes, the heavy burden of student loans isn’t worth attending one particular school, even if it’s your dream school. Do a cost-benefit analysis to objectively think about whether one school will be worth the extra dollars up front and/or in loans in the long run, versus another school that’s more affordable.
If you want to increase your chances of getting more financial aid, you can start with steps that will also help with your college applications. Getting your SAT scores up or investing time in community service hours will make you a more attractive college applicant, but it will also make you eligible for more scholarships.
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Francesca graduated magna cum laude from Harvard and scored in the 99th percentile on the SATs. She's worked with many students on SAT prep and college counseling, and loves helping students capitalize on their strengths.