Student Financial Aid

Student financial aid in the United States is funding that is intended to help students pay education-related expenses including tuition and fees, room and board, books and supplies, etc. for education at a college, university, or private school. General governmental funding for public education is not called financial aid, which refers to awards to specific individual students. Certain governments, e.g., Nordic countries, provide student benefit. A scholarship is sometimes used as a synonym for a financial aid award, although grants and student loans are also components of financial aid packages from students' intended colleges.

The United States government and all U.S. state governments provide merit- and need-based student aid including grants, work-study, and loans. As of 2010 there are nine federal and 605 state student aid programs and many of the nearly 7,000 post-secondary institutions provide merit aid. Major federal grants include the Pell Grants, Federal Supplemental Educational Opportunity Grants, Federal Work-Study Program, federal Stafford Loans (in subsidized and unsubsidized forms), state student incentive grants and Federal PLUS Loans. Federal Perkins Loans are made by participating schools per annual appropriations from the U.S. Department of Education. Federal Stafford Loans and Federal PLUS Loans are made by the U.S. Department of Education. As of April 2010, Congress voted to eliminate the Federal Family Education Loan Program (FFELP) which had allowed private lenders to make student loans guaranteed by the federal government.

State governments also typically provide some types of need- and non-need-based aid, consisting of grants, work-study programs, tuition waivers, and scholarships. Individual colleges and universities may provide grants and need- and merit-based scholarships.

Students requiring financial aid beyond what is offered by their institution may consider a private (alternative) education loan, available from most large lending institutions. Typically, education loans obtained through the federal government have lower interest rates than private education loans. Institutions may also offer their own student financial assistance, in the form of need- or merit-based aid, as well as endowed scholarships (with varying need and/or merit-based criteria). Some institutions may only require the FAFSA; some may also require a need-based analysis document, such as the CSS/Profile, to apply for such funds to apply a more stringent need analysis for the rationalization of institutional funds.

Types of financial aid and application process

Financial aid may be classified into two types based on the criteria through which the financial aid is awarded: merit-based or need-based.
Student aid is awarded as grants and scholarships, low-interest, government-subsidized loans, and education tax benefits.

In the United States, to apply for most student aid, a student must first complete the Free Application for Federal Student Aid (FAFSA). The application must then be submitted either electronically to the United States Department of Education, using the Department of Education's website, mailing a paper form, or, as the law also authorizes, by getting professional assistance from a fee-based preparer.[1] A student's aid application (FAFSA) may be submitted to the Department of Education as early as January 1 before the summer or fall when the student enrolls and must be re-submitted with updated information each year.[2] The FAFSA typically consists of 130 questions regarding a family's financial situation, typically consisting of 130 questions regarding a family's financial situation.[3] The Department of Education processes each request and tells a student how much the federal government expects their family to contribute toward paying for college—the Expected Family Contribution (EFC). However, an EFC is not necessarily how much a student will pay for college — aid can reduce an individual's cost. Then, the post-secondary institutions to which a student applies, determine how much federal, state, and college-specific aid a student will receive. An individual's student aid award is likely to vary from institution to institution.

Grant programs include the Pell Grant and the TEACH Grant. Federal loan programs include the Federal Direct Subsidized Loan and Federal Direct Unsubsidized Loans, the Perkins Loan and the Parent PLUS Loan and Graduate PLUS. Unlike with federal grants, a borrower must repay the loan amount and any interest. Federal loans offer lower interest rates and better repayment terms than private student loans from banks and other financial institutions.

Students (or their parents/guardians) can take advantage of education tax benefits to ease the financial burden of attending college. Education tax benefits added up to more than $6.8 billion in 2008–2009. Education benefit programs include the American Opportunity Tax Credit and the Lifetime Learning Tax Credit. These programs reduce a student's (or his or her parents'/guardians') taxable income while the student attends college.
In addition to federal student aid, students may be eligible for state-based aid. States provide students more than $10.2 billion of aid every year. Each state aid program is different. Usually, a student must reside and attend college in the state providing his/her aid. In some cases, a student can spend state aid on colleges in neighboring states.

Most aid is provided on a first-come, first-served basis so it is essential that students prepare and submit their aid applications in as close to January 1 as possible. The aid "window" stays open 18 months in case student's financial circumstances change and require adjustment to their aid application.

The application — approximately 130 questions each year — considers household size, income, assets, the number in college and other financial factors to determine a student's aid eligibility and an expected family contribution (EFC). Institutions use EFC to guide their decision about how much need-based financial aid to award a student. The EFC also takes into consideration any participation in college savings or pre-paid tuition plans. In the past, financial aid officers weighed pre-paid tuition plans more heavily than other 529 college savings plans when determining a student’s eligibility. In February 2006, Congress passed legislation to treat both types evenly.

Merit-based aid
Merit-based grants or scholarships include scholarships awarded by the college or university and those awarded by outside organizations. Merit-based scholarships are typically awarded for outstanding academic achievements and maximum SAT or ACT scores, although some merit scholarships can be awarded for special talents, leadership potential and other personal characteristics. Scholarships may be given because of group affiliation (such as YMCA, Boys Club, etc.). Merit scholarships are sometimes awarded without regard for the financial need of the applicant. At many colleges, every admitted student is automatically considered for merit scholarships. At other institutions, a separate application process is required. Scholarships do not need to be repaid as long as all requirements are met.

Athletic scholarships are a form of merit aid that take athletic talent into account.
In February 2012 the Arizona Legislature proposed a bill, HB 2675, that required students that attended a public university in the state of Arizona to pay an additional $2,000 fee in order to attend one of the 3 universities. The bill also stated that students should pay this fee by their own means, meaning that no federal or state grants would cover this fee. Originally, this bill did not exempt students who had outstanding academic achievement but solely students who were awarded an athletic scholarship. The most recent revision of the bill on February 22, 2012 included a section where students who demonstrated high academic merit were also granted an exemption from the rule.

Need-based aid
Need-based financial aid is awarded on the basis of the financial need of the student. The Free Application for Federal Student Aid application (FAFSA) is generally used for determining federal, state, and institutional need-based aid eligibility. At private institutions, a supplemental application may be necessary for institutional need-based aid.

A recent trend shows that what is purely need based aid is not entirely clear. According to the National Postsecondary Aid Survey (NPSAS), SAT scores have an impact on the size of institutional need-based financial aid.[5] If a student has a high SAT score and a low family income, they will receive larger institutional need-based grants than a student with a low family income that has low SAT scores. In 1996, public higher education institutions gave students with high SAT scores and a low family income $1,255 in need-based grants. However, only $565 in need-based grants were given to students with low SAT scores who had low family incomes. The lower a student’s SAT score, the smaller the amount of need-based grants a student received no matter what their family income level was. The same trend holds true for higher education private institutions. In 1996, private institutions gave students with high SAT scores and a low family income $7,123 versus $2,382 for students with low SAT scores and a low family income. Thus, “institutional need-based awards are less sensitive to need and more sensitive to ‘academic merit’ than the principles of needs analysis would lead us to expect.” [6] It has been found that increasing an SAT score in the range of 100-200 points can result in hundreds of dollars more in institutional grants and on average substantially more if one is attending a private institution.

While providing financial information to the government is a reasonable expectation to calculate a student’s financial need, it does not necessarily follow that colleges should have access to this information. Providing that information to schools may be problematic because schools learn about students’ other sources of funding and may adjust their financial aid packages accordingly. There is an asymmetric information problem since schools have full knowledge of their customers' ability to pay while students and their families have little information about costs that colleges face to provide their services. That is, when planning for the next academic year, a school will know its current and projected costs as well as each student’s ability to pay after receiving state and federal grants. According to the Center for College Affordability and Productivity (CCAP), “If the federal or state authorities increase financial support per student, the institution has the opportunity to capture part or all of that increased ability to pay by reducing institutional grants and/or raising their charges for tuition, fees, room, or board.”

Importantly, it also notes that “the exception to this general pattern is modest aid targeted at only low-income students, like the Pell grant.” The center uses data about net proceeds (tuition plus room, board and other fees) as a percentage of median income to show that financial aid practices have not been effective in decreasing prices in an effort to increase access. Net proceeds at public four-year institutions rose from 15% to 20% of median income from 1987 to 2008. In that same time, productivity has declined in the form of lighter teaching loads for professors and increased expenditures on administrative staff.

A bill proposed by the Arizona Legislature named HB 2675 required that all students who attend Arizona State University, University of Arizona, or Northern Arizona University pay a $2,000 fee by their own means with no federal or state grants. The bill was was both strongly supported by several Arizona State legislators and strongly opposed by legislators, students, and university administrators alike. Some of the outcry against the bill stated that the bill targeted the neediest of students and that the minimum requirement of $2,000 is enough to bar students from enrolling.[9] Proponents of the bill stated that students who could not afford the fee could simply acquire a loan. One proponent of the bill, (the main sponsor of the bill John Kavanagh, stated that he “couldn’t understand what would drive student loan up to tens of thousands of dollars.” The bill was meant to increase the incentives of students who actually want to go to college, so that they would have some “skin in the game.”

College cost calculators

Main article: College cost calculator
Post-secondary institutions post a Cost of Attendance or Price of Attendance, also known as a "sticker price." However, that price is not how much an institution will cost an individual student. To make higher education costs more transparent before a student actually applies to college, federal law requires all post-secondary institutions receiving Title IV funds (federal funds for student aid) to post net price calculators on their websites by October 29, 2011.

As defined in The Higher Education Opportunity Act of 2008, the net price calculator’s purpose is:
“…to help current and prospective students, families, and other consumers estimate the individual net price of an institution of higher education for a student. The [net price] calculator shall be developed in a manner that enables current and prospective students, families, and consumers to determine an estimate of a current or prospective student’s individual net price at a particular institution.”

The law defines estimated net price as the difference between an institution’s average total Price of Attendance (the sum of tuition and fees, room and board, books and supplies, and other expenses including personal expenses and transportation for a first-time, full-time undergraduate students who receive aid) and the institution’s median need- and merit-based grant aid awarded.

Elise Miller, program director for the U.S. Department of Education's Integrated Postsecondary Education Data System (IPEDS) stated the idea behind the requirement: "We just want to break down the myth of sticker price and get beyond it. This is to give students some indication that they will not [necessarily] be paying that full price."[12]
The template was developed based on the suggestions of the an IPEDS’ Technical Review Panel (TRP), which met on January 27-28, 2009, and included 58 individuals representing federal and state governments, post-secondary institutions from all sectors, association representatives, and template contractors. Mary Sapp, Ph.D., assistant vice president for planning and institutional research at the University of Miami, served as the panel’s chair. She described the mandate’s goal as “to provide prospective and current undergraduate students with some insight into the difference between an institution’s sticker price and the price they will end up paying.”

To meet the requirement, post-secondary institutions may choose between a basic template developed by the U.S. Department of Education or an alternative net price calculator that offers at least the minimum elements the law requires.

Debt vs. grants

No-loan financial aid
In 2001, Princeton University became the first university in the United States to eliminate loans from its financial aid packages. Since then, many other schools have followed in eliminating some or all loans from their financial aid programs. Many of these programs are aimed at students whose parents earn less than a certain income — the figures vary by college or university. These new initiatives were designed to attract more students and applicants from lower socioeconomic backgrounds, reduce student debt loads, and provide the offering institutions with an advantage over their rivals in attracting commitments from accepted students. This is an attractive way for students to relieve the amount of debt they are in after college.

The following colleges and universities offer such no-loan financial aid packages as of March 2008: