The Department of Education defines need as the difference between how much college costs and how much you can actually pay for it. In financial aid-speak, need is the difference between your Cost of Attendance (COA) and your Expected Family Contribution (EFC). If your college costs are greater than your ability to pay, then you have need. Financial aid officers figure out your level of need by using a process known as needs analysis.

Most financial aid is based on need, so the needier you are, the better off you’ll be. Sounds like the perfect formula for an unhealthy relationship.

Needs analysis is the method financial aid officers use to determine how much need-based aid you can receive. Remember: need is the difference between the college’s COA and your EFC. The needs analysis formula looks like this:

Cost of Attendance – Expected Family Contribution = Need

Let’s get to the point. If your EFC is zero, then your need will be exactly equal to the COA. On the other hand, if your EFC is greater than your COA, then your need is zero. More likely, your EFC will be lower than the COA, and you’ll have some degree of need.

When you think about the cost of college, you probably think about tuition. Tuition does make up most of the COA at a typical private college, but the opposite is true for many public colleges and universities, where the largest part of COA includes room and board. COA can also include transportation expenses, personal expenses, loan fees, and a reasonable amount for the one-time purchase of a computer.

The COA is NOT the same as a bill. The COA is the college’s estimate of what your total costs will be for the year. Typically, the only part of that estimate for which you will be billed is tuition and fees, and room and board if you live in campus housing. The COA can be as much as $8,000 to $12,000 higher than your tuition. If you’re great at living on a shoestring, you’ll find your total cost to be below that estimate.

COA can include:
• Fees and books
• Living expenses
• Meals
• Transportation
• Personal expenses
• Dependent care
• Computer purchase
• Costs related to a disability
• Costs for eligible study abroad program
• Entertainment

Remember: the higher the COA estimate, the better. A high COA means your need will appear even greater, which means you’ll be eligible for more need-based aid.

Your EFC is what the government thinks you can pay for college. The EFC is calculated using the information you provide on the Free Application for Federal Student Aid (FAFSA).

Depending on how much you and your family have in financial assets and how accurately you completed the FAFSA, your EFC can be anywhere from $0 to $99,999. Your EFC, whatever the amount, is what the Department of Education thinks you and your family should have to pay for college out of your own pocket.

There’s a good chance your EFC will feel too high, especially if you have very little cash but large amounts of savings or real estate investments. Don’t panic—we’ll tell you how to cover your EFC if you don’t have the money on hand.

The amount of need-based aid you get depends only on how much need you have. Your grades, activities, and general fabulousness are not factors. Your need-based aid will be limited to the COA minus your EFC. The higher the COA, the more need you’ll have.

Need-based aid can include:
• Pell Grants
• Supplemental Educational Opportunity Grants (SEOG)
• Perkins Loans
• Most college work study
• Most state grants
• The subsidized portion of the Stafford Loan
• Scholarships and tuition waivers

For many students, especially those attending public institutions, receiving a full award consisting of need-based aid will cover most of the costs of attending college.

Just because the financial aid office has estimated your EFC to be $10,000 doesn’t mean you have $10,000 on hand to use for college. In fact, you might be wondering how, exactly, you’re supposed to come up with that money. Not to worry: Non–need-based aid can help you cover the amount of your EFC.

Non–need-based aid includes awards, scholarships, and tuition waivers that are based on merit or other factors, including academics, athletics, musical talents, and enrollment leveraging. Federal sources of non–need-based aid include Unsubsidized Stafford Loans and Parent Loans for Undergraduate Students (PLUS). Though helpful, these are actually the least favorable forms of government aid, with stricter repayment policies than the Perkins Loan and Subsidized Stafford Loans. The PLUS loan also has a higher interest rate than the Perkins Loan and both kinds of Stafford Loans.

Though the interest rates for Unsubsidized and Subsidized Stafford Loans are the same, interest for the Unsubsidized Stafford Loan starts accruing while you’re still in school. The Subsidized Stafford Loan doesn’t start accruing interest until six months after you graduate.