Gearing up to head off to college is exciting (maybe a little more for the student than the parents). Not only is college, you know, the best years of your life, but it’s also an incredible opportunity to advance your education, along with other areas of your life.
And then comes the cost factor. Wondering how you’re going to pay for the next four or so years of your life can be pretty daunting.
But with a little guidance and research, you can be prepared for — and understand — exactly what you are getting into.
20 financial aid terms every college student and parent should know
1. Cost of attendance
This one should be simple to remember: it’s simply the total price of attending a particular school, including tuition, fees, room, board, books, meals, supplies, transportation and other expenses. Also known as ‘COA.’
2. 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.
3. 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.
4. Need-aware admission
This is a term used to describe colleges who consider applicants’ ability to pay when accepting or denying their application to attend.
5. Need-blind admission
Colleges who have a policy of need-blind accept students unrelated to their financial need.
6. 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.
7. Merit aid/non-need-based aid
Money awarded based on achievement, artistic abilities, leadership skills, or for reasons other than financial need.
8. Need-based aid
Need-based aid is money awarded to students when the family cannot afford to foot the full bill for college. It can be grants, or scholarships, or loans with lower interest rates.
Grants are sums of money for school that don’t have to be repaid. Grants are different than scholarships in that they are generally need based versus merit based, but scholarships can be need-based too.
A scholarship is free money for college that doesn’t have to be repaid, based on merit or need. Scholarships can be provided by colleges, university departments, corporations, non-profits and other organizations.
Read more: 11 best ways to find a college scholarship
11. Direct PLUS loan
A Direct PLUS loan is a program for parents or graduate or professional students. This is the only federal loan program that requires a credit check. The interest rate is higher than other loans and borrowing limits are higher, allowing a student pursuing a graduate degree to get the funding he or she needs to finish. These loan are also called Parent PLUS loans.
12. Perkins loan
Perkins loans are loans specifically for low-income students. The interest rate is lower and the terms are more lenient, such as more time to start repayment after school.
13. Subsidized Stafford loan
These loans are for undergraduate students only and awarded based on financial need. Interest doesn’t begin to accrue until you start paying on the loan after college. The reason these loans are ‘subsidized’ is that the government pays the interest on them during school or during hardship deferment. Also known direct subsidized loans.
14. Unsubsidized Stafford loan
Unsubsidized loans are available to undergraduate or graduate students and anyone can use them, since they are not based on financial need. But, interest begins accruing the moment you take out the loan. Also known as a direct unsubsidized loan.
Read more: The dangers of co-signing a student loan
15. Work study program
Work study programs are great opportunities for student to have a job on campus to help pay for college expenses.
16. Education Tax Benefits
These are tax-deductible benefits you can receive when you and your parents 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.
17. American Opportunity Tax Credit
The AOTC allows you to claim a tax deduction for up to $2,500 per year for each eligible college student for whom you pay qualified tuition expenses. It can be claimed on behalf of an undergraduate for four years — for a total of $10,000 in tax deductions.
18. Public Service Loan Forgiveness (PSLF)
We aren’t encouraging anyone to take out student loans, but if you do happen to have student loan debt, the PSLF is a loan forgiveness program for students who work full-time in a public service job for 10 years. Public service jobs include public school teachers, police, fire, EMT, members of the military, public defenders, prosecutors and others who work for the city, state and federal government, as well as people working for 501(c)(3) tax exempt charitable organizations.
Probably the most important term to remember, the FAFSA, or ‘Free Application for Federal Student Aid’ is a form that can be filled out each year by current and prospective college students, undergraduate and graduate, in the U.S. to determine their eligibility for student financial aid.
20. Personal Identification Number (PIN)
A PIN is a 4-digit number you will be assigned to electronically sign the FAFSA. This pin gives you access to your personal records. Students and parents must each have their own PIN.
Now are you ready for the test?
If you need a little more help, be sure to check out the Quick Guide to Financial Aid Terms from FastWeb.com — a ‘cheat sheet’ with additional information on the financial terms you need to know.