Financial Aid Terms You Need to Know

by

Last Updated: Oct 1, 2020

In order to get the most money out of your college financial aid package possible, you need to understand all the elements that factor in to creating your package. Unfortunately, one of the hardest parts about filing for financial aid is simply understanding what all the terms and acronyms mean. To help you feel confident in your financial aid knowledge, here’s a rundown of all the important terms you need to know.

The basic acronyms

When it comes to financial aid terms, you’re going to see a few of them abbreviated as acronyms—and you’ll see them written that way more often than not.

FAFSA or Free Application for Federal Student Aid

The FAFSA is the basic form you’ll need to fill out for federal and, in some cases, state financial aid. You can file the FAFSA the year before you first enroll in college and each year you attend thereafter. It opens on October 1 every year, and typically, the best time to fill out the FAFSA is as close to this date as possible because most financial aid is first come, first served. Many colleges require you to submit your FAFSA by a certain deadline, so be sure to check with your schools of interest to confirm when financial aid forms are due.

COA or cost of attendance

COA is what an institution believes it costs a student to attend their institution. The total amount includes tuition, required fees, room and board (for residential students), books, and other education-related expenses (travel, technology, etc.). If you’re having trouble figuring out the COA for your schools of interest, try using the College Board’s College Cost Calculator to aid your financial planning.

EFC or expected family contribution

EFC is the amount the federal government believes you and your family can contribute to your education on an annual basis based on your FAFSA results. You can use the FAFSA4caster calculator to get an idea of your financial aid eligibility and what your EFC will be prior to filling out your documents.

Related: Important Things to Know About Your EFC

FASFA terms

Master Promissory Note (MPN)

This is a legal document that must be signed upon completing your FAFSA if you’re borrowing student loans. The MPN will lay out the rights, responsibilities, terms, and conditions for loan repayment.

Entrance counseling

This is a run-through of a borrower’s obligations as well as terms and conditions regarding a federal student loan, which is required in order to access the loan.

Prepaid tuition

This plan allows you to lock in your tuition at the current price of enrollment, rather than being at risk of increased tuition over the four years of an undergraduate program. This plan is usually offered only at public colleges for in-state students and is typically guaranteed by the state government.

Types of aid

Scholarship

A scholarship is money that’s awarded to a student based on accomplishments and does not need to be repaid. Some scholarships factor in financial need in awarding money to students, while some factor in only merit and academics regardless of need.

Related: Scholarship FAQ: The Biggest Myths and Facts

Grant

Similar to scholarships, grants are funds that don’t have to be repaid. Eligibility is determined by information provided on your FAFSA (but is not affected by other students or merit like scholarships can be) and can be funded by federal and state governments as well as the college you plan to attend.

Loan

A loan is money given to you by a state or federal government or a private lender that must be repaid, typically starting six months after graduating from college. Loans must earn a favorable interest rate and have a payback schedule to be considered as financial aid.

Work-study

This program, which is offered through the FAFSA, is campus employment that gives students an opportunity to work on campus and contribute to their educational expenses. Some schools also offer work-study programs that allow students to be placed in employment positions off campus.

Related: What’s the Difference Between Scholarships, Grants, and Loans?

Types of loans and grants

Direct subsidized loan

This type of loan typically does not require a borrower—you, the student—to pay interest on the loan while they’re still in school or in a grace or deferment period.

Direct unsubsidized loan

This type of loan typically offers students a low fixed rate of interest and often will come with more flexible repayment plans. Borrowers do not need to demonstrate financial need to receive this loan.

Direct PLUS loan

If the usual direct loans still don’t cover the cost of your education, a parent is legally allowed to take out a loan in their name to help their student pay for school.

Related: Parent PLUS Loans and Covering College Costs

Federal Pell Grant

As the largest federal grant program, Pell Grants are reserved to aid students from low-income households. In order to qualify, a student must demonstrate financial need as indicated on their FAFSA documents.

Federal Supplemental Educational Opportunity Grant (FSEOG)

The FESOG is another federal grant implemented to aid undergraduate students with significant financial need, with awards offered up to $4,000.

Iraq and Afghanistan Service Grant (IASG)

Students who have suffered the loss of a parent or guardian due to military service in Iraq or Afghanistan are eligible for this grant if they don’t qualify for the Federal Pell Grant.

TEACH Grant

This grant is offered to Education and Teaching majors (or aspiring students) who are willing to commit to teaching in a high-need education field through an educational service agency or a school for low-income students for a minimum of four years.

Related: Colleges to Prepare for a Career in Education

The financial “need” factor

Need

The COA of a school when your EFC is subtracted equals your “need”; the number that is left represents the financial need of the student in order to attend the school. Financial aid offices will try to meet or decrease your need through available sources of grant, loans, and/or work-study; some schools will even meet 100% of your need. This may also be referred to as “unmet need,” but the idea is the same.

Need-blind

If a school has a “need-blind” financial aid policy,  it means they don’t look at a family’s ability to pay when deciding whether to admit a student, suggesting they are willing to provide aid regardless of what their financial need may be.

Need-aware

In this scenario, the school will consider a student’s ability to pay when considering whether to admit them, often suggesting that the school may not have the funds to provide high amounts of aid for students in need.

Merit-based

This aid is provided to students regardless of financial need, factoring in academics and other extracurricular activities to award funds. Typically, the term merit-based will be in reference to scholarships but can sometimes be used in relation to grants.

Related: The Merit of Scholarships (and How to Get Them)

Terms for specific situations

Judgement lien

This lien gives a creditor the legal right to keep property if the loan borrower fails to pay their debt. This means if your parents are helping you access financial aid through a PLUS loan, they will run into difficulties securing additional student aid if they have a judgement lien.

Legal guardianship

If you’re a student who is cared for by a legal guardian that is not a parent, you are not required to file your guardian’s income on your FAFSA form, which could work in your favor for getting a better financial aid package.

Related: Understanding (and Maximizing) Your College Financial Aid Package

Now that you know these basic terms, you’ll be ready to apply for financial aid and understand your aid package when it arrives. It may have seemed like an intimidating process before, but with the right information, financial planning for college just got a lot easier.

Are you concerned about how you’re going to pay for college but haven’t committed to a school yet? Check out the “College Costs” section in our Lists & Rankings to find great schools that will meet your financial need.

Like what you’re reading?

Join the CollegeXpress community! Create a free account and we’ll notify you about new articles, scholarship deadlines, and more.

Join Now