6 Financial Aid Terms Every Parent Should Understand
Heading off to college is exciting (maybe a little more for the student than the parents). On the other hand, wondering how you’re going to pay for the next four or so years of your life can be pretty daunting. Here are 6 terms that can help parents navigate the confusion of financial aid:
Expected family contribution: This is a term used in the college financial aid process in the United States to determine an applicant’s eligibility for need-based federal student aid, and in many cases, state and college aid. The expected family contribution (or EFC) is an estimate of the parents’ and/or student’s ability to contribute to college expenses.
Demonstrated need: This is the difference between your EFC and the cost of attendance. In other words, it’s what you need in order to attend college that you or your family can’t afford to pay.
Net price: This is the price of college minus tuition discounts, scholarships, grants, etc. This is usually far less than the advertised price for private colleges.
Need-aware admission: Need-aware is a term used to describe colleges who consider applicants’ ability to pay when accepting or denying their application to attend.
Education Tax Benefits: These are tax-deductible benefits you can receive when families file taxes, based on what you paid for college. Some examples: The Hope Scholarship tax credit, Lifetime Learning tax credit and the student loan interest deduction.
Direct PLUS loan: Federal loans available to parents or to graduate/professional students. The interest rate is higher than other loans available to undergraduate students, and borrowing limits are much higher. They’re also frequently called Parent PLUS loans, and they’re the only federal student loans that require a credit check.