Student financial aid in the United States
Student financial aid in the United States is funding intended to help students pay education 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, 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 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.
Students are expected to received about $168 billion to help fund their college educations during the 2009–2010 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 website, mailing a paper form 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 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.
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 2008–2009 academic year. Most federal student aid is awarded as grants and low-interest loans. Grant programs include the Pell Grant, and the TEACH Grant. Grants are "free money" — they don't have to be repaid as long as a student meets their obligations.
The federal loan programs include the Federal Direct Subsidized 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 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.
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 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.
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 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."
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.
As of March 25, 2008, the list of colleges and universities offering such no-loan financial aid packages includes the following:
Post-secondary institution No-loan financial aid for families meeting these eligibility requirements: Amherst College No max income Arizona State University Arizona residents with family income of up to $60,000 Bowdoin College No max income Brown University Family income below $100,000 Caltech Annual income below $60,000 Claremont McKenna College No max income Colby College No max income; all students Columbia University No max income Cornell University Annual income below $75,000 Dartmouth College Annual income below $75,000 Davidson College No max income Duke University Annual income below $40,000 Emory University Annual income below $100,000 Haverford College First-year students with financial need Harvard University No max income Lafayette College Annual income below $50,000 Lehigh University Annual income below $50,000 MIT Annual income below $75,000 University of Maryland, College Park Maryland resident with 0 EFC Michigan State University Michigan resident with family incomes at or below the federal poverty line Northwestern University Family income lower than approx. $55,000 North Carolina State University Income less than 150% of the poverty line. Requires the family to have "limited assets," regardless of state residency. University of Chicago Students who demonstrate financial need and whose annual family income totals $75,000 or less UNC Chapel Hill 200% of federal poverty line ($24,000 to $37,000) University of Pennsylvania No max income Pomona College No max income Princeton University No max income Rice University Annual income below $80,000 Stanford University Annual income below $60,000 Swarthmore College Anyone with financial need Tufts University Annual income below $40,000 Vanderbilt University No max income Vassar College Annual income below $60,000 University of Virginia 200% of federal poverty line ($24,000 to $37,000) Washington and Lee University No max income Washington University in St. Louis Annual Income below $60,000 Wellesley College $60,000 Wesleyan University $40,000 College of William and Mary $40,000 (VA residents only) Williams College No max income Yale University No max income
Some universities have opted to have a "loan cap" program, which is a maximum loan — either per year or for the four years combined — designed to reduce the cost of attendance for low-income and middle-class students. The following schools have a loan cap program:
School Loan cap for students meeting these eligibility requirements: Brown University Family earning less than about $125,000: Caps total loans to $3,000 per year. Family earning up to $150,000: Caps total loans to $4,000 per year. Family earning up to $150,000: Caps total loans to $5,000 per year. University of Chicago "Those whose families make between $60,000 and $75,000 will have 50% of their loans replaced." Cornell University Undergraduates with family incomes less than $120,000 will have loans limited to $3,000 per year. Duke University Undergraduate students with family income between $40,000 and $100,000 will have their loans limited on a graduated basis ($1,000 to $4,000 per year) and loans "frozen" at the freshman level.  Emory University "Annual assessed incomes of $50,000 to $100,000 who demonstrate need for financial aid. The program caps total need-based loans at $15,000, assuming on-time progression toward graduation with up to eight semesters of study." Grinnell College "Beginning in the 2008-09 academic year, need-based loans for all eligible students will be capped at $2,000 per year." University of Maryland, College Park Students with need-based financial aid will have their loans capped at $15,900 for their four years of attendance. Middlebury College Family income below $40,000: $1,500 per year; family income $40,000 to $80,000: $2,500 per year; family income above $80,000: $3,500 per year.  Rice University Students with a family income below $60,000 will not have loans. Families with incomes over $60,000 will have their loans capped at about $14,500. University of Virginia 200% of federal poverty line ($24,000 to $37,000). Need-based loans are capped at 25% of the in-state cost of attendance, regardless of state residency.
Outside the United States
Many national governments provide student financial assistance subsidies, i.e., student benefit, for students attending a university, although proposed policies to change such subsidies have engendered considerable debate in places, such as Canada, the United Kingdom, Germany, the Netherlands and Scandinavian countries. The heavy reliance on private subsidies, as in the United States, is not as widespread, although this may be changing.
In Germany, the main source of financial aid is provided by the Bundesausbildungsförderungsgesetz, colloquially known as BAFöG.
Many schools use a financial aid system that requires applicant families to reveal confidential income information to charge as much money as the families can pay. This is evidence of market power and may be illegal under antritrust laws.
- ^ Getting the Most Financial Aid to Pay for College 
- ^ 
- ^ How College Pricing Undermines Financial Aid 
- ^ [Association of Institutional Research Net Price Calculator Resource Center http://www.airweb.org/page.asp?page=2110]
- ^ University Business, "Preparing for the Net Price Calculator: Avoid Potential Pitfalls by Taking These Steps Today," Haley Chitty, October 2009
- ^ Challenges and Opportunities: Meeting the Federal Net Price Calculator Mandate by David Childress, Bill Smith, and Marc Alexander, May 2010
- ^ Report and Suggestions from IPEDS Technical Review Panel #26 prepared by RTI International 
- ^ President Barack Obama Scholars | Arizona State University
- ^ Bowdoin Eliminates Student Loans While Vowing to Maintain its Com, Campus News (Bowdoin)
- ^ 07-105 (Financial Aid Changes)
- ^ Caltech Press Release, 12/11/2007, Jean-Lou Chameau
- ^ News Release, News and Events, Claremont McKenna College
- ^ Colby College | News & Events | Colby Replaces Loans With Grants, Allowing Students to Graduate Without Debt
- ^ Columbia News ::: Columbia Expands Financial Aid
- ^ Dartmouth News - Dartmouth announces new financial aid initiative - 01/22/08
- ^ a b New Financial Aid Support
- ^ Haverford College News Room
- ^ Lafayette strengthens financial aid
- ^ Lehigh to enhance financial aid policy
- ^ MIT to be tuition-free for families earning less than $75,000 a year - MIT News Office
- ^ a b Interpretations, TERP Magazine Winter 2005
- ^ Spartan Advantage Program | Office of Financial Aid | Michigan State University
- ^ <Northwestern: Grants Replace Loans for Neediest Students>
- ^ Pack Promise
- ^ a b The University of Chicago: Odyssey Scholarships
- ^ Penn Admissions: Paying for a Penn Education
- ^ Pomona College : News@Pomona
- ^ Swarthmore College :: Financial Aid :: More about Swarthmore's
Expanded Financial Aid Program
- ^ Tufts E-News: Tufts University Eliminates Loans for Lower Income Students
- ^ http://www.vanderbilt.edu/expandedaidprogram/
- ^ Vassar College further strengthens commitment to access and affordability
- ^ WUSTL to expand financial aid for low-income families
- ^ Wellesley College Increases Financial Aid
- ^ http://www.wesleyan.edu/cgi-bin/cdf_manager/template_renderer.cgi?item=57727
- ^ Loan Cap Program
- ^ Tuition and Financial Aid - Grinnell College
- ^ Financial Aid
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