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This resource is being maintained for historical purposes only and is not currently applicable.

Demonstrating need

AwardYear: 1996-1997
Edition: PostSecondary
Part: 1 - - General information about postsecondary opportunities
SectionNumber: 3
SectionTitle: Demonstrating need

PageNumbers: 15-17

As we have 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 financial aid administrator usually develops an average COST
OF ATTENDANCE 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 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 allowances
for loan fees, dependent-care costs, and expenses for disabled

The process of NEED ANALYSIS determines 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 this 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. Please refer to the EFC Formula Book
1996-97 for further information on calculation of the EFC.

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 for a Federal
Pell Grant. 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 was $2,340, and the cutoff for eligibility was an EFC of 2140.*
Also note that awards do not change above a certain cost of
attendance. For instance, in 1995-96, the maximum cost that affected
the amount of the grant was $2,340; if a student had a zero EFC, the
student's award was $2,340 whether the student went to a school that
had a cost of attendance of $2,340 or to a school that had a cost of

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
qualifying him or her for $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
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

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 an unsubsidized loan (such as a Federal Direct
PLUS, unsubsidized Stafford Loan, or a Federal PLUS Loan) 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, a Federal
Direct Subsidized Loan, or a 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 2 of this handbook, and completion of the FAFSA is discussed
in Part 3.

* The maximum grant and EFC cutoff are determined each year by
Congress. At the time this publication went to print they had not
yet been established for 1996-97.

Last Modified: 06/28/1998