How to Understand Financial Aid in the Shortest Time Possible

College financial aid is one of the most important pieces of the college puzzle, however also one of the most ubiquitous. There are a few types of financial aid to be aware of – federal financial aid, institutional financial aid and private scholarships.  Under each of these types, there are different vehicles that actually deliver the financial aid.  Most people assume that financial aid is need-based, however there are plenty of opportunities that are not need-based and/or based on merit.  Although those types of scholarships (private scholarships) are harder to find, they are out there.  The purpose of this blog piece is to lend some clarity to how financial aid works and give families some direction as to where to find private scholarships. 

Federal Financial Aid

There are two types of federal financial aid: (1) grants and scholarships and (2) loans and work study.  Grants and scholarships are considered free money — families don’t have to pay it back.  Federal financial aid is determined by the FAFSA – the Free Application for Federal Student Aid.  The FAFSA is the first stop for all families in order to be considered for financial aid.  Even families that feel like they make too much money and would not qualify for financial aid should fill out the FAFSA for many reasons – the main one being that unless families understand all the factors that are considered on the FAFSA, then there is no guarantee your student will not get anything.  In addition, many schools use the FAFSA as a starting point for any aid, including merit and institutional.  In other words, schools may require you to file the FAFSA to even be considered for merit or other institutional aid.  Do not forgo filing the FAFSA.  The FAFSA takes into account several factors including income, assets, household size and marriage. Once the FAFSA has been completed and submitted, the Expected Family Contribution (EFC) is calculated. This is the first number in an equation that tells the Department of Education how much a family will need to pay for the college.  It also determines whether some of the financial aid will come in the form of grants/scholarships or loans/work study.  The lower this number is, the better because it creates a higher need for the families.  The basic formula to remember is Cost of Attendance (COA) – Expected Family Contribution (EFC) = NEED.  The higher the COA and the lower the EFC will create a greater NEED.

Note:  There are several changes coming down the pipe for the FAFSA to take effect as of July 2023 due to the passage of the Consolidated Appropriations Act 2021.  This means that the changes will appear on the October 2022 FAFSA. One of these changes will be that the EFC will be called the SAI (Student Aid Index).  The reason for the name change is because the “expected family contribution” is misleading and confusing.  The “student aid index” is a more appropriate name given that it’s purpose is to serve as a starting point to calculate financial aid – it’s not necessarily what a family is going to pay out of pocket.  Stay tuned for more changes in my next blog piece.

Institutional Financial Aid

Another type of financial aid is called institutional financial aid.  This type of aid is calculated by the institution that a student is admitted into.  This type of aid can be on top of federal financial aid or the only financial aid a student can receive.  Institutional financial aid uses a different methodology to calculate the need – it not only uses the FAFSA as a starting point, but also the CSS Profile. The CSS Profile stands for College Scholarship Service Profile and is a much more in-depth questionnaire about your finances.  Once nuance to consider is that on the FAFSA, if you are a single parent, you only need to include the custodial parent’s information (Note – this will also change with the new rules going into effect in July 2023).  However the CSS Profile requires both the custodial and non-custodial parents’ information.  Institutional aid is given to students directly from the institution itself, not the government.

Financial Aid Award Letter

Families will receive their financial aid award letter once their student has been accepted into a school.  The letter will provide a breakdown of how the family can cover the cost of attendance (COA) with the money that has been awarded to them.  Note – read the financial aid letter very carefully.  As a general rule, go line by line to understand how much is being offered and where the money is coming from.  Is it a scholarship coming from the school?  Is it a Pell Grant coming from the government?  Look at the loans – is one an unsubsidized loan and the other is a subsidized loan?  This is very important because each type of loan accrues interest differently.  The other item to watch for is the Parent Plus Loan.  Schools may make up the difference in the cost of attendance by offering the Parent Plus Loan which is a loan in the parents’ name at a higher interest rate than the student’s loan.  Before parents take this loan, it is worth exploring other options to make up the difference.

Private Scholarships

Private scholarships are given by corporations and organizations outside of colleges and the federal government.  They are not necessarily need-based.  Examples of private scholarships include:  

There are also websites that can help centralize your scholarship search.  A few to try:

The key to applying for private scholarships is research and patience.  Generally speaking, students should apply to scholarships that uniquely fit their circumstances to increase their chances. In addition, students have to apply to SEVERAL scholarships to possibly even get considered for one.  This is where students need to really buckle down which can be tough after the application process.  But in the end, free money is free money.  For many families, it is worth it.


Financial aid is one of the most important pieces of the college puzzle.  There are so many misconceptions out there about how it works and what families can qualify for.  However, the bottom line is that if families do not apply for financial aid, there is no chance that a family will receive any help, need-based or otherwise.  The cost of college is not decreasing any time soon and if higher education is a priority to your student, then understanding the financial aid process is a must.

If you want to learn more about the financial aid process and how it would work in your situation, please feel free to contact me at or 858.206.9411 to schedule a complimentary initial consultation.