Although financial aids are meant for low income families, higher income families may also qualify depending on how much and what kind of assets they own and their expenses. The eligibility criteria for financial aid seeking student is fairly straightforward:

  • US citizenship or eligible non citizen
  • Attend a college that participates in federal aid programs

Financial aid is based on the financial need of the student.
Financial need = Estimated college expenses in the year - Expected Family Contribution (EFC).

Estimated college expenses include: tuition, fees, room & board charges, books & supplies, transportation to/from school, health insurance, and incidentals. EFC is based on the financial standing of the student and students family.
The federal formula for EFC calculation is mainly dependent on the following factors:

  • Adjusted Gross Income of parents
  • Number of children in college or private schools in the year of application (include the student you are applying for)
  • Number of people in the family
  • Age of parents (when they are expected to retire)
  • Balance in checking, savings, CD, and taxable investment accounts (do not include retirement accounts)
  • Home equity in primary residence (market value of the house - outstanding mortgage balance) and other residential properties
  • Net value of business (if any)
  • Contributions to retirement plans (not the balance of retirement accounts). Contributions to Roth are not counted towards EFC.
  • Balance of all college savings plans (529 accounts and Coverdell Education Savings account)
  • Any merit scholarship that student has been awarded

In general, assets owned by the student carry a higher weight (30%) towards the calculation of EFC compared to the weight of assets owned by the parents (12%). Show details

Note that balances in 529 plans are owned by parents (not the student even though the student may be a named beneficiary on such accounts. But any distribution from 529 in a given year counts $ for $ for EFC. What it means is, financial aid initially determined gets adjusted downward based on the distribution form a 529 account. Most colleges follow a federal methodology to calculate EFC but they may have their own variations to it. One key determining factor is 'Expected Family Contribution' (EFC). EFC is used to calculate to what extent a student's parental assets are counted towards paying for the college expenses.
The amount you'll be asked to pay for college is based on your family's income and assets. Savings are considered an asset. However, current financial aid formulas only "tax" about five percent of parental assets each year. That is, the formulas assume that only five percent of child's parental assets are available each year to help pay for college. An in depth calculation of EFC is available at . More details on this topic are also available at Free Application for Federal Student Aid .

Once a financial aid has been determined by a college for a student, the next step is to determine under what aid program the aid will be disbursed to the student. Some of these aid programs are grants (no repayment required) while others are subsidized loans. These programs are governed by US Department of Education . They include federal grants, scholarships, and subsidized student loans. Note that grants and scholarships you don’t pay back but a student loan must be returned with the interest according to the terms of the loan agreement.

There are two types of federal grants available to eligible students.

  1. Federal Pell Grants:
    This is actually a grant from the federal government and is available to undergraduate students. The maximum Pell Grant in the current academic year is $5,785.
  2. Federal Supplemental Educational Opportunity Grants (FESOG):
    FESOG is available for eligible undergraduate students and can be given in addition to Pell Grant. FESOG funds are made available to the colleges and this grant can be given awarded if funds are available. In case of Pell Grants, US Department of Education ensures each eligible school will received sufficient funds to pay Pell grant to each eligible student. This grant if awarded can range between $100 and $4,000 per year.

Other than loans and grants, you may also want to explore scholarships at the college of your choice and the scholarships offered by non governmental agencies. These scholarships can be based on merit, need, or both. Your high school may also have information on some of these scholarships. Your parent’s workplace may also have some scholarships. . Some companies have recently launched scholarship programs for their employees’ children. One such company, Intel, recently started a similar scholarship program with up to $4,000 per child. A good place to check such sources is at Other popular scholarship resources include ,

  1. Stafford Loans:
    This is a subsidized loan from Federal Government (US Department of Education) at generally low interest rate and needs to be paid back (unlike grants). These loans could be provided directly by the Department of Education to the borrower or through a financial institution participating in the program (Federal Family Education Stafford Loans or FFEL). These loans could be subsidized in which case repayment begins after 6 months of graduation and the loan is interest free until that time. In case of unsubsidized Stafford Loans, interest is charged from day one. However, the payment of interest on this loan can be delayed until the completion of graduation. There may be a processing / administration fee for these loans.
  2. PLUS Loans or Parent Loans for Undergraduate Students:
    This is a loan available to the parents of dependent students at lower but variable interest rates. Parents need to have a good credit history. Similar to Stafford, this loan is given directly or through a financial institution (bank). The repayment of this loan starts immediately with each installment consisting of principal + interest. This loan also carries a processing/administration fee.
  3. Consolidation Loans:
    This is not really a loan by itself. It is actually a tool to consolidate all federal loans into one bucket so you can make one payment per month as opposed to multiple payments for multiple federal loans with different payment schedule.

To learn more on these programs visit Note that in addition to above federal grants and loans, some states also have student aid programs. You can obtain the information on state programs from the colleges. Some colleges also have their own student aid programs.

In a tough economic environment, all institutions run into different challenges. Many colleges will experience not only the reduced charitable giving but also a significantly reduced endowment pool due to market conditions. Many State Universities may also experience lack of state contribution due to budget shortfalls of the state. In such a situation, it is inevitable that tuition bill for a college will go up more than the average of 6%. Unless educators take a pay cut, it is quite likely that the tuition increase may touch double digits. Since parents also have less affordability to pay the tuition, it leads to a challenging situation. The lack of access to student loans in a credit crunch situation is going to further complicate the matter.

In such an environment it may be a good idea to look at some of the prepaid tuition plans. Such plans allow you to lock the current tuition rate for a list of colleges. See more on this under Saving Plans. But in current economic environment there aren't many of us who are fortunate enough to have the cash to even consider prepaid tuition plans. Besides, some states are running in financial difficulty to support those who already prepaid. With more than one million job losses in past one year, a large number of us are struggling and considering tough choices. With the current credit market situation, even student loans aren't very easy to get these days. You should also have a frank discussion about this with your child.

In order to deal with the challenges, here are a few tactics to consider:
If you are struggling with the financing of your kids' college education, here are a few things worth considering:

  • Try for different Federal grants, then Federal aids. Make sure to fill each year Free Application for Federal Student Aid (FAFSA) available at all colleges.
  • If you have your kids in a private college, you may consider either having them attend a few courses or a few semesters at a cheaper state college. Several private colleges allow that.
  • Some colleges also offer financial aid to students under financial stress. If you have an existing student loan, try renegotiating terms of the loan with the lender.
  • In case your college going child is staying in an apartment or dorm, consider other option e.g. have him/her stay with a relative or a cheaper location away from the college… Show details
  • Tap other sources of financial aid. Many family run philanthropic foundations offer scholarships based on economic needs and/or academic performance of students. These foundations have their investments somewhat conservatively invested and as a result they may be better positioned to help you. Your child's high school could be a good source of such local organizations. Many service groups, corporations, and individuals also offer awards based on different things e.g. applicant’s field of study, ethnicity, extracurricular work. A good place to check such sources is at
  • The other option could be moving child to a cheaper state college. Many States are recognizing this as a priority and putting some funds aside to mitigate the situation. Additionally, according to College Board about 56 percent of students attend four-year schools with annual tuition and fees below $9,000. After grants are taken into consideration, the net price the average undergraduate pays for a college education is significantly lower than the published tuition and fees. Another interesting statistic from College Board is that only about 9 percent of all students attend colleges with tuition and fees totaling $33,000 or higher per year.
  • If you have a child in high school, consider ‘college matchmaker’. A college matchmaking involves matching a incoming student’s profile with that of highly desirable profile for a given institution. A good match can save you one or more than one year of college expenses. Match making criteria mainly include academic performance, leadership, and extracurricular activities.
  • Instead of sending your child to a private school from year one, consider one or two years at a state college. Some private colleges may be willing to accept credit transfer afterwards. But check with the concerned private colleges first.
  • Some colleges also offer monthly repayment plans. This could be an arrangement you may consider if you run in difficulties securing the student loan.
  • Although a tough one, but taking leave of absence from college may be another option. While job situation is not good, your child can also look at finding a job and conserve some cash. The other opportunity could be to let your child jumpstart the after college plans and gain some experience.
  • Most importantly, have a frank conversation with your child. I’m sure children are aware of the situation too and talking to each other and figuring out some creative ways to get around it. They can also look for taking waiver exam for some of the courses they may have attended as part of their high school. Rules of waiver exam vary from school to school.
  • Lastly, cut some of the expenses you feel are discretionary, see money saving tips ( cross –reference: Money Management -> Savings and Expenses -> Money Saving Tips article).
  • To be able to effectively finance college education, here is a list of steps.

    • Consulting your child, determine a list of colleges that your child likes and is likely to get into.
    • Analyze your financial situation
    • Determine if you are likely to get any grants. There is no harm in applying.
    • Check all possible sources of scholarships: colleges, independent charities, local support groups etc
    • Determine your Expected Family Contribution using EFC calculator on www.Finaid.Org.
    • Fill up and submit the FAFSA form. Even if you think you may not qualify for any financial aid, it is a good practice to submit the FAFSA application. They have a hard deadline. Do not miss it.