You may be surprised by the number of unfamiliar terms associated with college and college life. Undergraduate, TA, accreditation, Greek life, the FAFSA—high school counselors and college admissions officers use these terms every day. Unfortunately, they don’t always stop to explain what each term means.
The “College Speak” series explains the college-oriented vocab that you need to be in the know and focus on the more important questions, such as “which school would be the best fit for me?”
Today’s terms are:
- need- and merit-based financial aid,
- scholarships and grants,
- student and parent loans, and
- the FAFSA and PROFILE.
Need- and Merit-Based Financial Aid: Unfortunately, most families cannot cover a college’s total cost of attendance with just their income and savings. They need help, whether it’s in the form of an outright price reduction from the school, loans, or a job that helps the student to cover out-of-pocket expenses.
Need-based financial aid helps to make up any gap between a college’s cost of attendance and what a family can afford to pay. Although it often includes federal and state resources, the college decides how much—and what type(s) of aid—to give to the family.
Colleges, however, don’t give aid just to families who would need the money. They also give aid to families of students whom they’d really like to attend. A school may want a student for a number of reasons, including his or her academic record, test scores, or talents (e.g., athletic or musical ability).
In these cases, a college may offer merit-based financial aid to make the school more attractive by lowering its cost. (If, for example, you are choosing between two schools that you like the same, you might go with the less expensive one, right?) This type of aid is usually in the form of a scholarship or grant (see below), and it is funded by the school itself.
Note that a school’s financial aid package may be partially need-based and partially merit-based—there isn’t a strict division between the two. Also know that you will be able to accept or reject individual components of a school’s aid package—sort of like ordering sushi à la carte—it’s not a "take it or leave it" offer.
Scholarships and Grants: These two terms are often used interchangeably and mean the just about same thing—free money that you do not have to pay back.
So why do we use two different terms here? Grants tend to be no-strings-attached gifts, while scholarships may have conditions attached (such as maintaining a certain GPA in college).
Most scholarship and grant money comes from either the college itself or the federal or state government and is awarded by a college in its financial aid package. (The greater the dollar amount of the scholarships or grants in a school’s aid package, the better it is.)
The amount of money available through third-party scholarships is relatively small.
Work-Study: A program that provides part-time jobs to college students. You may see a work-study dollar amount in a school’s financial aid package. This money may be designated to cover either tuition or out-of-pocket expenses in the cost of attendance.
Don’t be alarmed at the prospect of juggling both school and a work-study job; most work-study jobs require a limited time commitment. At some, you may be able to catch up on your coursework during slow periods.
The work-study program is also called Federal Work-Study (FWS) as it is subsidized by the federal government.
Student and Parent Loans: As the student—rather than his or her parents—is the applicant for financial aid (see below), most loans in aid packages are student loans.
Student loans are always need-based. The federal government is usually the lender, and this is a good thing—federal-loan interest rates are lower than the prevailing interest rates for commercial loans. Unfortunately (or fortunately, depending on your perspective) the maximum yearly amounts for student loans are generally modest.
For that reason, a college’s financial aid package may also include parent loans. If you see a parent loan in your aid offer, it generally means that the school is not truly meeting your family’s financial need.
Some schools won’t include a parent loan in your aid package, but they will leave you with a family contribution that is higher than you can afford. In that scenario, your family will need to find its own parent loan if you wish to attend that school. In either case, you should seek federal rather than private parent loans.
Repayment for both student and parent loans generally begins after you complete college—you won’t have to worry about making loan payments on top of meeting college costs. If you can get a student or parent federal loan that is “subsidized,” your loan won’t accrue interest while you are in school. Such loans are the gold standard of college loans.
The FAFSA and PROFILE: To get a financial aid offer from a school, you will need to apply for it. There are several forms that your family may need to complete.
At a minimum, you will need to complete the FAFSA (Free Application for Federal Student Aid). Pronounced as a word—“fafsa”—it is a federal document, and it is available on the web.
Some states use the FAFSA as their application for state aid, but others will also require you to fill out a special state form to be eligible for their scholarships, grants, and loans.
Finally, some schools will also require the completion of their own financial aid form on top of any or all of the forms above.
The purpose of each of these forms is to collect the information that the school needs to calculate what it believes to be a fair EFC (Expected Family Contribution). Each form has a slightly different roster of questions.
The EFC is, theoretically, the amount of your college education that your family can afford to finance in a given year. If a school provides an aid package that covers all costs beyond your EFC, you may end up with a relatively affordable college education, regardless of the school’s cost of attendance.