Edition: High School
Part: 1 - - General Information about Postsecondary Opportunities
SectionTitle: Demonstrating need
As we've said, a student must demonstrate FINANCIAL NEED to be eligible for most federal student aid. Quantifying a family's need for financial assistance has often been controversial, but it is not a recent issue. In fact, uniform systems of need analysis were developed by the financial aid community in the 1950s, before most of the Federal student aid programs were established.
At its simplest level, a student's financial need is the DIFFERENCE between the student's COST OF ATTENDANCE at the school and the amount THE FAMILY IS EXPECTED TO CONTRIBUTE TO THE STUDENT'S EDUCATION.
The financial aid administrator usually develops an average cost of attendance (COA) for different categories of students. Some programs of study might have lab fees or higher charges for books and supplies than other programs. Students living off-campus might have higher costs for room and board and additional transportation expenses than students living on-campus.
For the Federal student aid programs, the financial aid administrator must use the definition of "cost of attendance" given in the law. The law specifies that the cost of attendance includes tuition and fees and an allowance for living expenses, such as room and board, books and supplies, and transportation costs. The law also provides limited allowances for loan fees, dependent-care costs, and expenses for disabled students.
The process of NEED ANALYSIS focuses on determining how much the family reasonably can be expected to contribute toward the student's education. Traditionally, financial aid administrators have determined the amount a family can contribute by collecting information about the family's income and assets and making reasonable allowances for the family's living expenses. The law has adopted much of the traditional approach to need analysis for the Federal student aid programs. There is a single formula for federal student aid, which produces the EXPECTED FAMILY CONTRIBUTION (EFC). The EFC is used to award Federal Pell Grants, campus-based aid, Direct Subsidized Loans, and subsidized Federal Stafford Loans.
To determine the amount of a student's Federal Pell Grant, the financial aid administrator looks up the cost of attendance and the EFC on a payment schedule to determine the award. The lower the EFC is, the higher the grant award is. A student with a zero EFC has the most need and receives the largest possible amount of Federal Pell Grant funds. A student with an EFC above the cutoff point is not eligible for a Federal Pell Grant.
The Federal Pell Grant Program is presumed to be the first source of aid to the student, so the award process for a Federal Pell Grant does not consider other sources of aid. For 1995-96, the maximum yearly grant will be $2,340, and the cutoff for eligibility will be an EFC of $2,140. Also note that awards do not change above a certain cost of attendance (COA). (In 1995-96, the maximum cost that will affect the amount of the grant will be $2,340.) For instance, in 1995-96, if a student has a zero EFC, the student's award will be $2,340 whether the student goes to a school that has a cost of attendance of $2,340 or to a school that has a cost of $8,000.
When awarding CAMPUS-BASED AID OR DIRECT SUBSIDIZED LOANS or certifying SUBSIDIZED FEDERAL STAFFORD LOANS, the financial aid administrator must consider other aid available to the student in addition to the amount the family can contribute (EFC). For example, consider a student with an EFC of $500 who enrolls in a program that costs $6,000. The student then needs $5,500 in financial aid to go to school ($6,000 - $500 = $5,500). However, when the student receives a $2,000 Federal Pell Grant and a $1,000 outside scholarship, the student's need is reduced by $3,000. Therefore, the aid administrator can award up to $2,500 in campus-based aid and subsidized Federal Stafford or Direct Subsidized Loan funds ($5,500 - $3,000 = $2.500).
When processing unsubsidized loans, such as a Direct Unsubsidized Loan or a FEDERAL PLUS LOAN, the aid administrator doesn't use the EFC figure to determine the student's or parent's eligibility, because these loans are not need based. However, the amount of the loan may not exceed the difference between the student's cost of attendance and all other aid the student is receiving, including aid from private and other nonFederal sources. The school must consider the student's eligibility for other aid before determining a loan amount. For instance, if an independent student in his or her first year of study has a cost of attendance of $6,000 and is eligible for a maximum Pell Grant of $2,340 and a maximum subsidized Stafford Loan of $2,625, the aid administrator may approve the student for an unsubsidized Stafford Loan of up to $1,035 ($6,000 - $2,340 - $2,625 = $1,035).
In this section, we have given a simplified overview of how a postsecondary school's financial aid administrator determines a student's financial need for the various federal student aid programs. Using all available federal and nonFederal aid, the financial aid administrator generally puts together a financial aid package that is presented to the student in the form of an award letter. The student may accept or decline any of the financial aid offered in the award letter. The process of PACKAGING AND AWARDING AID can be complex, especially when the student is receiving work-study or noninstitutional funds. If a student or a prospective student has questions about his or her financial aid package, these questions should be addressed to the financial aid office that prepared the package.
As we have seen, federal student aid awards ultimately are made on the basis of the student's EFC. It is important to note that even though eligibility for unsubsidized loans (such as Federal Direct PLUS or Federal PLUS Loans) is not based on the student's EFC, the student's eligibility for financial aid awarded on the basis of EFC (such as a Federal Pell Grant, Direct Subsidized Loan, and subsidized Federal Stafford Loan) is considered when awarding these loans.
To have his or her EFC determined, a student must fill out and file the FAFSA. Unlike admissions applications, the FAFSA is sent to a federal government processing center that is independent of postsecondary schools. The student's information is entered into the Department's computer system, which then calculates the student's official EFC. The application process for financial aid is described in Part II of this handbook, and completion of the FAFSA is discussed in Part III of this handbook.