When you hear colleges talk about financial aid, you will hear these terms: eligibility, need, expected family contribution, need-based aid, non-need based aid, and loans. It’s difficult to wrap your head around the process if you don’t understand the basic terms that are used when discussing financial aid.


In order to qualify for financial aid, you must be eligible to receive it. The first step in receiving aid is that you must be accepted to a college. Other criterion may also come into play: state of residence, academics, family contributions, and other college-specific requirements. You will need to demonstrate that need; most often it is done by completing the FAFSA (Free Application for Federal Student Aid).


Simply defined, need is the difference between the cost of attendance and the family contribution which is calculated by completing the FAFSA. This figure is calculated by using the information provided and is used by the college to determine your financial aid.

Expected Family Contribution

The EFC is calculated by determining a value that compares your ability to pay all or part of the college cost in relation to other families like yours as well as those with more ability to pay and those with less ability to pay. Colleges use this figure to award financial aid in the form of grants, loans and scholarships. The College Board offers a simple calculator you can use to determine your EFC.

Need-based Aid

This type of aid is awarded by colleges based on your need. It can come from the federal government, state governments, the colleges themselves and even outside sources in the form of scholarships. The amount that is awarded cannot exceed the amount that is determined on the FAFSA.

Non-need based Aid (or Merit Aid)

This type of aid comes in the form of scholarships and academic grants. Financial need is not a factor in the decision of the award, but other criterion might be used: academics, athletics, program of study, and so forth. Colleges often award this aid to students they feel are deserving of recognition and as an incentive to assure their acceptance of admission.


According to FinAid.org, an education loan is a form of financial aid that must be repaid, with interest. Education loans come in three major categories: student loans (e.g., Stafford and Perkins loans), parent loans (e.g., PLUS loans) and private student loans (also called alternative student loans).

Colleges use the above terms when discussing your financial aid options. Understanding these terms will help you when speaking with the college’s financial aid counselor. It’s also important to understand these terms before you make choices regarding how you will finance your college education.

Are you confused about financial aid? Do you have questions about any of these terms? If so, please feel free to leave a comment here and I will be happy to answer them.

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