20 financial terms every college student and parent should know

|
20 financial terms every college student and parent should know
Team Clark is adamant that we will never write content influenced by or paid for by an advertiser. To support our work, we do make money from some links to companies and deals on our site. Learn more about our guarantee here.
Advertisement

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.

Read more: New campaign aims to level the playing field by transforming college admissions process
 

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. 

Read more: 9 ways to pay for college without student loans

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. 

9. Grants

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. 

10. Scholarships

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.

Read more: Parents paying college tuition may now be eligible for $10,000 tax credit

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. 

19. FAFSA

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. 

Read more: Education start-up offers new way for students to pay for college

Advertisement
Author placeholder image About the author:
Members of our editorial team contribute to content published by "Clark Howard Staff." To keep up with our latest news, follow us on Facebook and Twitter.
View More Articles
  • Show Comments Hide Comments