Part: 1 - - General Information
SectionTitle: Demonstrating Need
As we've said, a student must demonstrate financial need to be eligible for most federal student aid. At its simplest level, a student's financial need is the difference between the student's cost of attendance (COA) at the school and the amount the family is expected to contribute toward the student's COA.
The FAA adjusts the COA to accommodate programs of study that have lab fees or higher charges for books and supplies than other programs. Students living off-campus might have higher costs for room and board and transportation expenses than students living on-campus.
The law specifies that a student's COA includes tuition and fees normally assessed a student carrying the same academic workload and an allowance for living expenses, such as room and board, books and supplies, and transportation costs. The law also provides limited allowances for loan fees, dependent-care costs, and expenses for disabled students.
Need analysis determines how much the family reasonably can be expected to contribute toward the student's COA. The Department determines need by collecting information about the family's income and assets and applying a formula to those data. For the SFA Programs, the law specifies a single need analysis formula, which produces the Expected Family Contribution (EFC). The EFC is used to award Federal Pell Grants, campus-based aid, and subsidized loans. The EFC Formula Book 1998-99 explains the formula in detail.
To have his or her EFC determined, a student must complete and file the FAFSA. Unlike admissions applications, the FAFSA is sent to a federal government processing center that is independent of postsecondary schools. The student's information is entered into the Department's computer system, which then calculates the student's official EFC. The application process for financial aid is described in Part 2 of this handbook, and completion of the FAFSA is discussed in Part 3.
To determine the amount of a student's Federal Pell Grant, the school looks up the COA and the EFC on a payment schedule. The lower the EFC is, the higher the grant award is; a student with an EFC above the maximum eligible EFC is not eligible for a Federal Pell Grant. A student with a zero EFC has the most need and receives the largest possible Federal Pell Grant.
The Federal Pell Grant Program is presumed to be the first source of aid to the student, so the award process for a Federal Pell Grant does not consider other sources of aid. For the 1998-99 award year (July 1, 1998 to June 30, 1999), the maximum yearly grant is $3,000, and the maximum eligible EFC is $2,800. Note that awards do not change above a certain COA. For instance, in 1998-99, the maximum cost that affects the amount of the grant is $3,000; if a student has a zero EFC, the student's award is $3,000 whether the student attends a school that has a COA of $3,000 or a school that has a COA of $8,000.
When packaging campus-based aid or a subsidized loan, an FAA must consider the EFC along with other aid available to the student. For example, consider a student with an EFC of $500 and a COA of $6,000. The student then needs $5,500 in financial aid ($6,000 - $500 = $5,500). However, when the student receives a $2,000 Federal Pell Grant and a $1,000 outside scholarship, the student's need is reduced by $3,000. Therefore, the FAA may award up to $2,500 in campus-based aid and subsidized Federal Stafford or Direct Subsidized Loan funds ($5,500 - $3,000 = $2,500).
When packaging an unsubsidized loan, such as a Direct Unsubsidized Loan, an unsubsidized Stafford Loan, or a PLUS Loan, the FAA doesn't use the EFC figure to determine the student's or parent's eligibility, because these loans are not need based. However, the amount of the loan may not exceed the difference between the student's COA and all other aid the student is receiving, including aid from nonfederal sources. The school must consider the student's eligibility for other aid before determining a loan amount. For example, if an independent student in his or her first year of study has a COA of $7,000 and is eligible for a maximum Pell Grant ($3,000) and a maximum subsidized Stafford Loan ($2,625), the FAA may approve the student for an unsubsidized Stafford Loan of up to $1,375 ($7,000 - $3,000 - $2,625 = $1,375).
[[This file contains the EFC Chart on page 7 in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]]
Even though eligibility for unsubsidized loans (such as Federal Direct PLUS or Federal PLUS Loans) is not based on a student's EFC, the student's eligibility for financial aid awarded on the basis of EFC (such as a Federal Pell Grant, Direct Subsidized Loan, and subsidized Federal Stafford Loan) is considered when awarding unsubsidized loans.
Packaging and awarding aid can be complex, especially when the student is receiving work-study or noninstitutional funds. Using all available federal and nonfederal aid, the FAA generally puts together a financial aid package that comes as close as possible to meeting the student's demonstrated need. A school often presents the financial aid package to the student in the form of an award letter; however, an award letter is not a guarantee of financial aid. The student may accept or decline any of the financial aid offered in the award letter. Students often have questions about the financial aid package; these questions are best handled at the school.