Doing your research and applying for financial aid, if needed, are crucial steps in your college planning.

How Financial Aid Eligibility is Determined

Federal financial aid
The first step to determining eligibility for federal financial aid is to complete the Free Application for Federal Student Aid (FAFSA) available at www.fafsa.ed.gov. The U.S. Department of Education uses this application to calculate your Expected Family Contribution (EFC), which measures your family's financial strength or ability to pay for college.

Colleges then use your EFC to determine if you will receive funds from federal financial aid programs and, if so, how much aid you will receive. The college will prepare a financial aid package to help meet your financial need (the difference between the costs of attending the college and your EFC).

If your student begins college in the fall, you should apply as soon as you can after January 1 of the same calendar year. March 1 is generally the priority deadline for many colleges. It's important to apply early since financial aid is awarded on a first-come, first-served basis. It is easier to complete the FAFSA after you complete your tax return for the previous year because you need your income information for the FAFSA.

Financial aid from states, colleges and other sources
Financial aid is also available from states, colleges and other sources. The procedures and deadlines for these financial aid programs may be different from the federal programs. Contact college financial aid offices directly for more information or answers to your specific questions.

Types of Financial Aid
There are three main types of financial aid:

  • Grants and scholarships. These do not have to be repaid. Grants may be issued by the federal or state government or the college. There also are grant and scholarship programs from other groups, such as foundations, community organizations and companies. Some grants and scholarships are awarded on the basis of financial need, such as the federal Pell Grant, while others are based on merit. Be sure to research each program's requirements and apply for as much assistance in the form of grants and scholarships as possible.
  • Loans. The majority of financial aid is given as loans, which must be repaid. Most of these are low-interest loans available for both students and parents. Loans are either subsidized or unsubsidized. A subsidized loan is awarded on the basis of financial need, and no interest accrues until repayment begins six months after graduation. With an unsubsidized loan, interest accrues while the student is still in school. Repayment generally does not begin until six months after graduation; however, the student may choose to pay interest along the way. 
  • Work-Study. This is a federal program offered through colleges to employ students who have financial need in an effort to help them pay for education expenses. Students work part time on campus in paid positions such as library clerks and cafeteria workers or in approved off-campus community service programs.

Your Investments Affect Eligibility
If you've invested for education expenses but do not have enough money to cover the total costs of college, your investments may affect how much financial aid you or your student can receive. Your financial aid eligibility will depend on your family's financial circumstances at the time you apply for assistance.

Investments such as a Coverdell Education Savings Account (formerly the Education IRA) or an account in a 529 Plan may be considered assets of the account owner for the purposes of determining aid eligibility. Talk to your financial advisor about the specifics of your college investing plan and financial aid.