skip to Main Content

Financial Aid Sleight-of-Hand

So, you’ve finally received your financial aid award letter.  Congratulations!  As you read through the letter, you may see a myriad of terms and abbreviations that can challenge even the best financial planner.  Award letters are as unique as the colleges that they are sent from.  There is no regular layout or required format, making it all the more challenging to decipher and compare between colleges.

Student loans are one of the more confusing areas of an award letter.  Student loans come in two important types that are critical for you to understand.  The first is a need-based loan, which is awarded based on your financial need.  Need-based loans are intended to help meet the financial expenses of college (tuition, books, room/board).  They help bridge the gap between the “expected family contribution” (EFC) and the total cost of education for a given year.

Another way to look at this is by using a simple formula that could be expressed this way:

Total Cost of College

– (minus) EFC

= Financial Need

In this formula, your financial aid award should go towards your “financial need” and nothing else.  Thereby, we can also flip the formula to read: EFC + Financial Aid = Total Cost of College.

The second type of student loan is the non-need based loan, which is not based on any particular financial need.  So, what is the purpose of it?  Non-need based loans are simply loans offered to help the family meet their expected family contribution.  In other words, these loans go towards the EFC, not to bridge the financial gap between the EFC and the total cost of college.

Why is this important to know?  Your EFC is your responsibility and really none of the college’s concern.  In fact, if you’re struggling to meet your EFC, you could get a loan on your own (assuming you had good credit) to help.  Or you could work out payment plans with the college.  The point being that non-need based loans do not aid towards your “financial need,” but rather give you a loan towards what you are already expected to pay.  Typically, these loans are made to parents as PLUS loans, and are underwritten by the US government.  Most any parent with good credit can qualify for a PLUS loan up to the total cost of college minus any true financial aid received.

When a college mixes together need and non-need based loans in an award letter and presents it as meeting your total financial need, they are engaging in a financial sleight-of-hand.  It’s important for you to know that they haven’t met 100% of your financial need in doing this.  A financial aid award letter loaded with a PLUS loan is not as valuable as one that meets the total financial need of a student and their family.

If you’re looking for more free help with the financial aid process, download the free financial aid manual at

Back To Top