What Is Financial Aid?

There are a variety of financial aid tools available to students today, including scholarships, need-based awards, work-study employment and student loans. Let's start with need-based financial aid.

Nearly two-thirds of today's full-time college students receive some form of need-based aid [source: NCES]. Need-based financial aid eligibility is based on two calculations -- the total cost of education and the family's ability to pay. The cost of education can vary significantly from institution to institution. Generally, these calculations include all reasonable costs (tuition, room, board and living expenses) of attendance.

To apply for need-based financial aid, families must complete the Free Application for Financial Aid (FAFSA) and, if appropriate, the College Scholarship Service's PROFILE application. These documents are used to determine what amount, if any, a family (and that means both parent and student) can contribute to the annual cost of attendance. That number is known as the Expected Family Contribution (EFC). The specific amount of your EFC may vary somewhat from institution to institution, but the formulas in place ensure that most EFCs are similar.

The formulas consider a variety of family circumstances when determining eligibility. (The College Board Web site has some great financial aid calculators you can use.) Consequently, there's no real cut-off point or maximum income a family can have and still qualify for assistance. Even if you have a comparatively high income, you may still qualify for need-based aid, particularly if you have more than one child in college. Every student, regardless of financial situation, should consider applying for need-based aid to see what happens.