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Financial Aid 101 – How Does It Work?

What is “Financial Aid?”

Many parents thing the term “Financial Aid” refers to loans, only.  It doesn’t.

“Financial Aid” is a catch-all term that includes 1. Loans, 2. Work-study, and 3. Free stuff – grants and scholarships.

 “Grants” usually refers to free money awarded based on “Financial Need.” (how you look on paper based on income, assets, number of kids in college at the time, age and other factors).

 “Scholarship” typically indicates merit-based awards, meaning money given for grades, scores, athletic ability, performing arts talent and so forth.  (You’ll see that many colleges use the term Merit loosely – they award money to non-academically elite, non-athletes and non-performing artists too.)

The same applicant can receive a wide range of each category from the colleges she applies to.

 How Do You Apply for Financial Aid?

 You apply by filling out forms and submitting them to the schools your child is applying to.  Most people do this online, but I suppose some schools still accept hard copies.  The forms are:

The Free Application for Federal Student Aid, or FAFSA.  The Federal form, required by all colleges.  It’s free.

The FAFSA is a little more than 100 questions, asking mostly about income, savings accounts and other tedious stuff.

The directions are clear for the most part, but I see TONS of mistakes on this form all the time.  I cover those mistakes in Chapter 12, but if you want a visual walk-through of where the deadliest, money-losing mistakes lurk on the FAFSA, watch this webinar

The CSS Financial Aid Profile is another popular, but far less common form, used by roughly 200 colleges, typically private schools with their own endowment money to dole out, instead of only Federal grants and loans.

The Profile is a pain in the tush!  It’s more than 200 questions, and much more detailed than the FAFSA.

Why?  My best guess is that colleges with their own institutional funds want more detail on your financial picture before they decide whether to commit them.  So they rake you over the coals, with all sorts of detailed questions not on the FAFSA, such as:

The value of your retirement accounts

The fair market value of your home

Your mortgage balances and monthly payments

The year you bought your home and price paid

How much you can afford to pay for college

Whether you anticipate help from any other family member or other source to help you pay for college

Profit and Loss, Balance Sheet and other information about your business, if self-employed

Whether you have savings in any of your OTHER kids’ names


Here’s the kicker:  your STUDENT is supposed to fill out the Profile!

You read that correctly.  The CSS Profile is made by the College Board –the same College Board that administers the SAT.

When your child registers for the PSAT, in Sophomore or Junior year, she creates a College Board user name and password. These log-in credentials are the same used to access the CSS Profile.

Here’s some savvy advice from a high-priced college finance consultant:

Do NOT let your child fill out your financial aid forms!

Unless you’re comfortable turning over your tax returns, bank statements, etc. to young Jared and trusting him to understand them, or knowing about your finances, that is.

RESOURCE:  I cover the entire financial aid process, soup-to-nuts, including key differences of the FAFSA and CSS Profile, in a free online workshop that I no longer conduct live.  Go to:

If you are a business owner applying to a school that takes the CSS Profile, you’ll likely be required to complete and submit a Business/Farm Supplement, which consists of basic financial information that your accountant can handwrite.

Supplemental Forms

A small percentage of colleges require you to fill out their own, unique forms.  Check with each college what forms they mandate.

When Do You Apply for Financial Aid?

 You apply for financial aid before you know whether or not your child got into the colleges on his or her list.  In other words, you apply to “purchase” your product – a degree – before you know how much it will cost.

Most high school seniors submit their ADMISSIONS applications sometime in the fall, say October or November.

Most FINANCIAL AID applications are submitted in January or February, in accordance to each college’s financial aid Priority Deadlines.

 Note that this is long before most people file their tax returns. How?  Because you use estimated income on the financial aid forms, then amend the forms once you have actual numbers.

This is important – and highlights a key mistake that MANY families make.  Don’t delay filing your financial aid forms until after you’ve completed your taxes!

 Yes, there are exceptions.  If your child applies Early Decision or Early Action, the deadlines for those applications sometimes coincide with the deadline for one of the financial aid forms required by many competitive colleges – the CSS Profile.  Early CSS Profile application deadlines could be November 1 or November 15.  Be sure to research this if you’re applying Early Action or Early Decision.

 For the most part, the CSS Profile and FAFSA, is submitted after the first of the year (you cannot submit a FAFSA before January 1 of the year you want financial aid).

 Note:  returning students have Priority Deadlines later than 1st year students, for the most part.  Check your college’s website.

 What will you get?

How do colleges determine how much you’ll qualify for?  There are approximately 73 factors that make up the key calculation in the financial aid formulas – the Estimated Family Contribution (EFC).

Income is the most heavily weighed factor – penalized between 22-47% (yes, I explain all this junk later).

Assets are another – child assets are treated differently than parent assets (20% penalty versus 5.64%).

But these are not the only elements that can affect how much you’ll have to pay for college.  Here are a handful of other considerations:

Your age

The number of students in college at the same time

Whether you own a business

Your marital status

So just because you earn a decent income – or what you assume is a high income – you should not blow off applying for financial aid.  Income is but one of the afore-mentioned 73 factors.

OK, so the financial aid applications are submitted in the beginning of the year.  By March, your child will have heard back from all colleges whether she was admitted or not.

A few weeks later, typically by the middle or end of March, you will receive a financial aid award letter from each college your child has been admitted to.

What happens if you’re not happy with the award?  You can try to improve it, because it’s not a “firm” offer written in stone by any means.  It’s only an OFFER.

Yes, you can appeal your financial aid award letter – Chapter 28 provides an overview of this process.  Also, check out a recording of a class I taught on all possible techniques you can use to improve a less-than-generous financial aid offer:

Next, the dust settles, your child picks the college she’ll attend and you’re happy with your financial aid award.  Summer comes and goes and your child heads off to college.  Are you through with the financial aid process?

Unfortunately, your sneaking suspicion is correct – you re-file again the next year.

Why must you suffer like Bill Murray in “Groundhog Day”?

Because circumstances change year to year– people lose jobs, make more money, come into inheritances and so forth.  Colleges of course want to know about your financial status each year.  If there’s a significant change, they’ll want to know why, too.  So a change in circumstances can work for or against you.

Still with me?  That’s the financial aid process in a nutshell.

For more information, timely updates, a yuck or two, subscribe to Andy’s free newsletter, the Pay Wholesale for College Success Bulletin.