Understanding Financial Need

Many financial aid programs are based on financial need, but what exactly is "financial need"? Many students and families assume they don't have financial need since they live a comfortable lifestyle. In fact, the amount of need depends on many factors, including not only income but also the cost of each school and the number of people in your immediate family who are enrolled in college at one time.

Financial need is determined by formulas that take into account student income, parental income for financially dependent students, savings, and the cost of attending a particular school. But at its simplest level:

Financial Need = your Cost of Attendance - your Expected Family Contribution

The cost of attendance will vary by school, but the expected family contribution doesn't change. So, using round numbers with a family whose Expected Family Contribution is $12,000:

If the student chose to attend the public two-year school, he or she would not qualify for any need-based aid since the amount the family should be able to contribute equals the cost. On the other hand, if the student chose one of the four-year schools, he or she would qualify for a great deal of aid.

On the surface, it really is that simple. Of course, the reality is that coming up with the funds to meet the need is complex.

First, let's talk about cost and Expected Family Contribution.

The first part of the formula, Cost of Attendance, includes all the expenses involved in attending a particular school. These expenses include tuition, room and board, student fees, textbooks, supplies, transportation and other costs, which vary per school. Each school prepares a budget that takes into account all those costs, including many others. Essentially, the budget is what an average student would spend for the year while living frugally. For those living on campus, the budget includes the actual cost of the dorm and food plan. For those living off campus, there is an allowance for rent and utilities. And when schools consider transportation, they may include not only the cost to get to and from classes, but also two or three trips home per year.

In addition to the required costs (tuition, fees, books, etc.) there are those miscellaneous things students spend money on, including lab fees and art supplies. Schools really do know what it costs most students and they know that unless they use realistic budgets, students won't be able to make it through the year.

The second part of the formula, Expected Family Contribution, is in theory, the amount your family can afford to pay for your college education. The dollar amount of the EFC is determined by a formula derived by Congress that takes into account your family income, savings, other assets, the size of your household, and the number in the household attending college, among other factors. The Expected Family Contribution is calculated through information gathered on the financial aid application, and in some instances, through multiple applications. You can calculate your own family's EFC, or an approximation of it, by using online calculators.

The financial need is what remains after subtracting the EFC from the cost of attending school - the higher the cost, the greater the need since the EFC does not change.

The most important thing to understand here is that "financial need" is relative. Don't forget that the cost of attendance varies greatly from school to school. As we pointed out earlier, students who have no need and would not be eligible for financial aid at a less expensive school may have need and be eligible for a great deal of aid if they choose a more costly school. Don't let a school's tuition discourage you from applying - the school with the higher tuition may just be less expensive after factoring in an aid package.