Student financial aid in the United States
Student financial aid in the United States is funding intended to help students pay educational 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 SEOG Grants, SMART Grants, Academic Competitiveness Grants (ACG Grant), 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, loans, 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 an additional 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
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Financial aid may be classified into two types based on the criteria through which the financial aid is awarded: merit-based or need-based.
Students are expected to received about $168 billion to help fund their college educations during the 20092010 academic year.  Student aid is awarded as grants and scholarships, low-interest, government-subsidized loans, and education tax benefits, and nearly everyone is eligible for some of it.
In the U.S. to apply for most student aid, a student must first complete the Free Application for Federal Student Aid (FAFSA) by submitting the application electronically to the U. S. Department of Education's using the Department of Education's Web site, or as the law also authorizes, by getting professional assistance from a fee-based preparer. 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 income, asset, and dependency information each year. The Department of Education processes each request and tells a student how much the federal government expects your family to contribute towards 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.
Most student aid is federal aid people's tax dollars working for students. Students received more than $109.7 billion in federal aid during the 20082009 academic year. Most federal student aid is awarded as grants and low-interest loans. Grant programs include the Pell Grant, the Academic Competitiveness Grant, the TEACH Grant, and the SMART Grant. Grants are best because they are "free money" they don't have to be repaid as long as a student meets any obligations they may have.
The federal loan programs include the Federal Direct Subsidized and Federal Direct Unsubsidized Loans, the Perkins Loan, and the Parent PLUS (Parental Loan for Undergraduate Students) Loan and Graduate PLUS (a loan for Graduate students). 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 20082009. Tax-based education 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.
To qualify for federal, state, and institutional aid, a student must prepare a Free Application for Federal Student Aid (FAFSA) every year. The earliest filing date is January 1 for the upcoming academic year. Federal law authorizes that students have two choices when preparing their federal student aid application, either prepare the application themselves on the Department of Education's Web site, or use the services of a fee-based, professional aid advisory firm. For the 2010-2011 academic year, the FAFSA was the gateway to about $168 billion in student aid. 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 students eligibility. In February 2006, Congress passed legislation to treat both types of plans evenly.
Merit-based grants or scholarships include both scholarships awarded by the individual 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 also 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, however, a separate application process is required. Scholarships do not need to be repaid as long as all scholarship requirements are met.
Athletic scholarships are a form of merit aid that take athletic talent into account.
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.
While providing financial information to the government is a reasonable expectation in order to calculate a students 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 various services. That is, when planning for the next academic year, a school will know its current and projected costs as well as each students 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 4-year institutions rose from 15% to 20% of median income from 1987 to 2008. In that same time period, productivity has declined in the form of lighter teaching loads for professors and increased expenditures on administrative staff.
College cost net price calculators
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 calculators 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 students individual net price at a particular institution.
The law defines estimated net price as the difference between an institutions 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 institutions 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."
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, postsecondary 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 panels chair. She described the mandates goal as to provide prospective and current undergraduate students with some insight into the difference between an institutions 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.
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