A Parent's Guide to Financial Aid

Your child is worried about getting into college—but you're probably more concerned about paying for it. Here's the good news: there is plenty of financial assistance for families paying for college. You just need to know how to get it.

The prospect of applying for financial aid can seem intimidating—especially the first time. But the financial aid process is not as difficult as you think. All it takes is time, a little organization—and a lot of paperwork/online forms.

Previewing Your Magic Number

The "magic number" of the financial aid process is the Expected Family Contribution (EFC). This is the amount of money you and your child are expected to contribute to paying for college. The EFC is based on the income and other financial assets of you and your college-bound child.

You can get a preview of your EFC using one of several calculators on the Internet (to get two estimates based on the two most widely used methods).

"Do not assume you will be ineligible [for financial aid] before calculating your expected contribution with this tool," says Robert Massa, vice president of enrollment, student life, and college relations at Dickinson College (PA). "While it is only an estimator, it can give you a very good idea of your possible eligibility for aid."

How It All Works

The point of any financial aid form (see the next section for details) is to figure out your EFC. It seems like a simple concept. Calculating the EFC is not so simple, though, because it requires extremely detailed financial information about each applicant. That's where the FAFSA (Free Application for Federal Student Aid) and other financial aid forms come in. The information from your child's completed financial aid form is plugged into a series of formulas to calculate how much money your family can afford to pay for college.

Individual colleges then use the EFC and their own fees to determine your child's demonstrated financial need. Financial need in this context is the difference between the cost of a particular college and an applicant's EFC. For example, Jane Smith's EFC is $5,000. At College A, which costs $9,000 per year, Jane's financial need is $4,000. At College B, which costs $20,000 per year, Jane's financial need is $15,000. Both colleges expect Jane and her family to pay $5,000 per year, but Jane needs (and will probably receive) more financial aid at College B.

Taking all of this into account, each college at which your child applies for financial aid will put together a financial aid package. A financial aid package shows how an individual college plans to meet the financial need of your child if he or she attends that college. If your child is accepted at three colleges and applies for financial aid at all of them, he or she will receive three different financial aid packages.

Financial aid packages can contain any combination of the three basic types of aid: loans, grants and work-study:

• Loans may come from the federal or state government, from the college itself, or from other sources. They must be paid back by you or your child (depending on the type of loan). One common type of loan, the Stafford Loan, is subsidized by the federal government. As a result, your child doesn't have to begin making payments on this type of loan until several months after he or she is out of college.

• Grants or scholarships may also come from the government, the college, or other organizations. They are gifts and don't need to be paid back. Need-based grants are based solely on your child's financial need. Merit-based grants or scholarships may be given to students who have special talents or achievements in some area (such as academics, sports, music, or leadership). Merit scholarships are not limited to students who have financial need, although they could make up part of the financial aid package for students who do have need.

• Work-study requires your child to work part-time at an on-campus job once he or she arrives on campus. This aid is given directly to your child in the form of a paycheck. Usually, it is up to your child to find a work-study job—although the financial aid or other office will often help to place students.

Each college's financial aid package will have different proportions of loans, grants and work-study. You and your child need to analyze each package to decide if it is affordable for your family (details on that later).