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Cost of College

Glossary of College Finance Terms

Frank Palmisani, author of Right College, Right Price, has provided a list of definitions of terms commonly used in the discussion of college finance and college tuition.

Academic fit—Achieved if the college has the major or program the student wants to pursue, and his or her GPA and standardized test scores match up with those of the school’s median population.

Affordability—The amount that a family can afford to spend on college each year.

Affordability threshold—The maximum amount of money that a family has available to spend on college each year.

AGI (adjusted gross income)—The amount of a family’s income subject to federal taxation after deductibles have been subtracted. Families with an AGI of less than $160,000 receive a full tax credit of $2,500 for each child attending college in the year college costs of $4,000 or more are paid. Partial tax credits are available for families with incomes from $160,000 to $180,000.

Appeal—Family’s request to the college’s financial aid office to consider additional circumstances, such as a change in the family’s financial situation or added expenses, since the FAFSA was filed. Reasons to appeal might include loss of income, medical or health-related expenses, educational costs of the student’s younger siblings, or extraordinary circumstances.

Application fee—Fee charged by colleges as part of the admission process and sent in with the application; usually $30 to $90 for each college.

Assets—Defined for FAFSA purposes as savings and investments. For parents, that includes cash, savings, checking accounts, money market accounts, mutual funds, and individual stocks and bonds, but not the equity of the parents’ home or the value of retirement plans such as annuities and IRAs. Each student is allowed to earn up to $6,000 that is not included in the calculation of his or her family’s EFC. If a child has money in a savings account, only 20 percent of the total amount is added to the EFC.

Asset protection allowance—Every family receives an asset protection allowance on the FAFSA. Based on the oldest parent’s age and the number of people in the family, the allowance protects some reportable assets.

Award letter—The official document that a college sends to a family after all financial aid forms have been submitted, usually in March or April of the child’s senior year. The award letter identifies a family’s net price and lists all financial aid programs—including grants, scholarships, loans, and campus employment options—for which the student is eligible.

Capitalizing the interest—Refers to the practice of adding the interest to the principal of an unsubsidized loan and then paying it all off after graduation. Capitalizing the interest can increase the loan balance by 15 to 20 percent by the time the student starts to repay it. A better plan may be for the student to pay the interest ($25 per month, based on the current 6.8 percent interest rate) while in school.

College grant—Money awarded to a student to help pay tuition or other college costs. The grant may come from the federal government, a state agency, or the college itself. Unlike loans, grants do not need to be repaid.

College inflation—Term referring to the fact that college costs are rising at a much more rapid rate than the inflation of the U.S. economy as a whole, make college much less affordable for everyone.

College loan—Direct loan from the college to the student to help pay his or her education costs. These loans are rare and vary in interest rates and repayment terms.

College search programs—These online programs give students access to information on more than 2,000 four-year colleges and universities in the United States and allow them to enter preferences (school location and size, major, extracurricular activities, and more) to create a narrowed-down list of colleges that match the student’s interests.

College work study (or Campus employment)—campus job offered to the student to lower the cost of attendance.

Community college—Local, two-year public college that offers a wide variety of vocational training programs as well as the option of completing general requirements and then transferring to a four-year college. Offers the advantage of greatly reduced tuition costs for district residents. Open admission allows students to improve their GPAs before moving to a four-year school.

Commuting—Living at home and attending a local college, an option that dramatically reduces net price by eliminating the cost of room and board and also can make private colleges affordable.

Cost of attendance—Term used by colleges to identify their comprehensive college cost, which includes tuition and fees, room and board, transportation, books and supplies, and personal expenses. Also referred to as sticker price. Cost of attendance is a somewhat meaningless measure without knowing how much the student will receive in grants, scholarships, and student loans.

CSS Profile—A supplemental financial aid form that some colleges require families to complete in addition to the FAFSA. Provides more detailed financial information than the FAFSA and is required by some Ivy League and other highly selective private schools. College financial aid officers use results of the profile to frame the financial aid letters they send to students.

Custodial account—A Section 529 prepaid tuition program or other account that lists the child as the owner and the parent or other adult as the custodian. Listing a custodial account as a student asset on the FAFSA produces a higher EFC number than if the account is listed as a parent asset.

Direct costs of attendance—Tuition and fees, and room-and-board costs of attending a college. Direct costs are not the same as the cost of attendance, which also includes books, transportation, and personal expenses.

Direct Loan—Loan available through a federal program to any student whose family completes the FAFSA. The per-year borrowing limit for the unsubsidized loan is $5,500 for freshman year, $6,500 for sophomore year, and $7,500 each for junior and senior years, for a maximum of $27,000. (For more on the two types of these loans, see Subsidized Direct Loan and Unsubsidized Direct Loan.)

EFC (Expected Family Contribution)—A number calculated after FAFSA submission that determines a student’s eligibility for certain need-based financial aid programs. Generally, the lower the number, the greater the student’s eligibility for these programs. This number is not the net price, the amount that the student’s family is expected to pay out of pocket for college.

Execution Phase—The second part of Financial Fit, in which families understand the EFC and financial aid, including the ten loan options, and complete the FAFSA and possibly the CSS Profile. This phase also includes exploring merit and private scholarships, maximizing the student’s benefits, interpreting award letters, and finally choosing the right college at the right price.

Extended repayment—Option of longer payment time allowed for Direct Loans. If the student has accumulated more than $30,000 in student-loan debt, he or she can opt to repay it over ten to thirty years. This lowers the monthly payment but results in paying more interest over the course of the loan.
Estimated net price—The estimated amount that attendance at a college will cost per year, determined by using the school’s net price calculator on its website.

FAFSA (Free Application for Federal Student Aid)—The financial aid application that the U.S. government uses to officially determine a family’s EFC number. FAFSA provides access to need-based financial programs and to federal Direct Loans. The FAFSA is filed on or after January 1 of the child’s senior year of high school and must be resubmitted every year the student is in college.

FAFSA4caster—A government software program that allows families to calculate an estimated EFC number in advance of filing the FAFSA. This number can be used in many net price calculators to save from having to complete the income and asset questions requested.

Federal Student Aid—Office of the U.S. Department of Education that receives completed FAFSA forms and uses them to assign EDC numbers for each family.

Federal work study (or campus employment)—A campus job awarded based on financial need to a student to lower the cost of attendance.

Feel fit—Achieved if the atmosphere of the college feels right to the prospective student who can imagine himself or herself part of the college culture there.

Financial fit—Achieved if the college’s net price is one that the family can afford.

Financial Fit college categories—Eight categories into which U.S. colleges can be grouped based on their price and affordability: flagship state schools, non-flagship state schools, out-of-state flagship state schools, out-of-state non-flagship state schools, highly selective private schools, midsize private schools, private schools, and commuting and/or community college options.

Flagship state school (in state)—The premier state college or university in the state where the family lives; these schools make up one of the Financial Fit college categories. Usually these schools have more students and more stringent admission requirements than other state schools. They offer lower in-state tuition but also may offer fewer scholarships or grants.

Flagship state school (out of state)—The premier state college or university in a state other than where the family lives; these schools make up one of the Financial Fit college categories. Usually these schools have more students and more stringent admission requirements than other state schools.

Gift aid—Financial award from a college to a student that reduces the overall cost of attendance. This is not money that needs to be repaid.

Graduated repayment—Option for repaying a Direct Loan in which payment is low at first and increased every two years. The lowest payments are obtained through the income-based and extended-repayment options.
Highly selective private college—One of the most prestigious colleges or universities in the country, such as Harvard, Yale, or Stanford; these schools make up one of the Financial Fit college categories. Admission is highly competitive, requiring high grades and test scores. Some of these schools offer substantial assistance to families with financial need.

Home equity loan—An additional loan beyond the mortgage on the parents’ home that is paid out in a lump sum to help finance college. Advantages are that interest on a home equity loan is tax deductible and the loan can provide a longer repayment period than a student loan.

Income-based repayment—Option for repaying a Direct Loan that bases the amount of monthly payments on the former student’s discretionary income. This is defined as adjusted gross income minus 10 percent of the poverty line for the family size.

Independent student—One who is a ward of the court, homeless, in the military, or married, or who is financially supporting children of his or her own. Also a student who is taking graduate classes or more than twenty-four years old. Students are not considered independent of their parents simply because they were not declared on their parents’ tax return.

Line of credit against equity—A home equity line of credit (HELOC) established to pay for college. Instead of borrowing a lump sum, the parents write checks on the line of credit to pay the college, when needed, and only pay only interest to the lender while the student is in college. After that, the parents pay down the principal on the line of credit.

Local scholarships—Private scholarships awarded by community businesses, organizations, and clubs and often available only to students in your high school. These scholarships offer the greatest chance for success because the pool of applicants is very small.

MAP (Monetary Award Program) grant—a need-based state grant offered to residents of Illinois. Eligibility for the MAP grant is determined by your EFC number.

Merit scholarship—Money awarded to a student by a college for academics, athletics, or other special talents to lower the cost of attendance. Merit scholarships are not need based and do not need to be repaid.

Midsized private college—A college grouped in the smallest of the Financial Fit college categories. These schools usually have an enrollment of more than 5,000 students and sticker prices that are lower than those of the highly selective schools but higher than those of the private schools. Schools in this category often offer attractive merit-based scholarships and need-based grants.

Military scholarship opportunities—Three types are offered: admission to one of the U.S. service academies such as West Point, which is a difficult, competitive process; a merit-based military scholarship by joining the Reserve Officer Training Corps (ROTC) and serving as an officer in the armed services after college; or enlisting and receiving tuition assistance.

National scholarships—Private scholarships that are available to students throughout the country and publicized widely online. These scholarships can be difficult to get because of the large, competitive pools of applicants.

NAIA (National Association of Intercollegiate Athletics)—National governing body for approximately 350 small college athletics programs in the United States.

NCAA (National Collegiate Athletic Association)—Association that organizes athletic programs of many U.S colleges and universities. These schools play sports in three divisions (Division I, Division II, and Division III) that differ in the depth of the sports programs offered. Generally the largest schools compete in Division I and smaller schools in the other two divisions. The NCAA allows Division I and II schools to offer athletes scholarships for playing a sport.

NCAA Eligibility Center—Certifies that registered athletes who wish to compete in NCAA Division I or II athletics programs have the required academic credentials from high school and are amateur athletes. This certification is required to be admitted to certain schools and to receive merit money. High students can register online with the eligibility center during their junior year of high school.

Need-based grants—Money awarded for a student to attend college based on that student’s financial need. Unlike a loan, grant money does not need to be repaid.

Net price—The actual out-of-pocket cost of a college after grants, scholarships, student loans, and campus employment options have been deducted from the sticker price.

Net price calculator—A federally mandated software tool provided on every college’s website that allows a family to calculate its estimated net price at that school. Note that all colleges do not use the same, universal net price calculator, which can complicate making comparisons. Calculators that require parents to provide exact financial information and ask questions about the student’s academic performance are the most reliable.

Net price comparison chart—Chart that lists estimated net prices for selected colleges in the Financial Fit college categories for comparison and has been prepared by a family to help determine which college categories and individual schools will fit their affordability threshold.

Non-flagship state school (in state)—A state-supported college or university other than the flagship school in the state where the family lives; these schools make up one of the Financial Fit college categories. These schools may have fewer students and lower admission standards than the flagship school but are not necessarily of lesser quality. These schools offer lower tuition for state residents but usually fewer grants or scholarships than private schools.

Non-flagship state school (out of state)—Not the premier state school but another state-supported college in a state other than where the family lives; these schools make up one of the Financial Fit college categories. These schools may have fewer students and lower admission standards than the flagship school but are not necessarily of lesser quality. They usually offer fewer grants or scholarships than private schools.

Parent loan—Type of loan that the parent, not the student, is responsible for repaying. An example is the federal PLUS loan.

Pell Grant—The largest federal grant program in the country. Eligibility for Pell Grants is determined by the family’s EFC number. If the number is 4,995 or lower, the student is eligible for a full or partial Pell Grant. Eligibility is determined separately for each year of college.

Perkins Loan—Subsidized loan of up to $5,500 a year made to a student with financial need by a college, using funds received from the federal government. No interest accrues on the account until after the student graduates, and repayment begins nine months after graduation. Completing the FAFSA is an eligibility requirement. Colleges usually award these loans on a first-come, first-served basis, giving them to students with the greatest financial need.

Planning Phase—The first part of Financial Fit, in which families assess their affordability and discuss that with their student, as well as understanding the Financial Fit college categories and using colleges’ online net price calculators to determine affordability. This phase also includes considering the community college and commuting options to lower costs, and narrowing down the list of colleges under consideration.

PLUS Loan (Parent Loan to Undergraduate Students)—A federal loan option available to parents to help pay for college. The parent, not the student, is responsible for repaying this type of loan, which is not based on financial need. Repayment starts immediately, as does the accrual of interest on the loan. The PLUS loan should not be included as a type of financial aid when determining net price.

Prepaid tuition plan (Section 529)—Tax-free college saving plan that allows parents to lock in future tuition rates at in-state private colleges at current prices. Named after Section 529 of the Internal Revenue Code.

Private college—A college that is not part of a public college system that receives funding from the state. (See also private school, one of the Financial Fit college categories of colleges.)

Private education loan (or alternative student loan)—Loan offered by a bank or other financial institution, not the federal government. These loans are not based on need, not subsidized, and more expensive than federal loans. While technically student loans, private education loans require a good credit history, which generally means a parent co-signer who will be held responsible for repaying the loan.

Private scholarship—Money awarded to a student to use for college by businesses, agencies, organizations, and clubs. These may be based on a wide variety of criteria, such parents’ type of work, ethnic background, location of residence, student interests or skills, selected college major, service activities, or other factors.

Private school—A school that is not a state school or highly selective private school and generally has fewer than 5,000 students. Some of the schools have maintained a religious identity, while others have not. These schools make up the largest Financial Fit college category of U.S. colleges and universities. They may offer substantial merit awards.

Regional scholarships—Private scholarships awarded to students by their county, city, or state. The competitive pool for these awards is larger than for a local scholarship but still smaller than that of the national scholarships.

Reportable asset—Any of the parent assets required to be reported on the FAFSA. These include funds in cash, savings and checking account on the day the FAFSA is prepared, as well as assets in CDs, mutual funds, individual stocks and bonds, commodities, and equity in real estate other than the family home. Based on the oldest parent’s age and the number of people in the family, some reportable assets are protected.

Repositioning of assets—Moving parents’ savings and investments into categories that do not have to be reported on the FAFSA document, such as pension plans, IRAs, Roth IRAs, or annuities. In most cases, shifting assets does not result in a significantly lower EFC number.

Resident assistant (RA)—Student employed by the college to help supervise and manage a floor of a dormitory; usually paid a stipend of $8,000 to $10,000, along with free room and board. Sometimes called a resident advisor.

SAR (Student Aid Report)—Summary sent to families that shows the information they provided on the FAFSA. The SAR should be checked for accuracy and changes made as needed. Colleges that the family selected on the FAFSA and state agencies that award need-based aid receive an electronic version of the SAR, called the ISAR, to use in determining the student’s financial aid.

Scholarship search programs—Online programs available on specialized websites that a student can use to narrow down the list of national opportunities and link to information and applications for those that seem most appropriate to pursue. These widely used search programs create pools of thousands of applicants for the scholarships, making them highly competitive.

Standard repayment—The most common repayment option for Direct Loans, which is paying them off over ten years.

State grant—Grant that a student receives from an individual state to help pay college costs. Eligibility may be determined by the family’s EFC number, which generally has to be quite low to qualify. The student may have to attend a public or private college in the state.

Sticker price—The advertised price of a college. The sticker price includes tuition and fees, room and board, transportation, books and supplies, and personal expenses. Also referred to as cost of attendance. The sticker price is a somewhat meaningless measure without knowing how much the student will receive in grants, scholarships, and student loans.

Student loan—A loan written in the student’s name and which the student, not the parents, is legally responsible to pay back with interest. Federal Direct Loans are an example.

Subsidized Direct Loan—Federal student loan offered to students who file the FAFSA and demonstrate financial need. No interest is accrued on subsidized loans until six months after the student graduates from college, and interest rates are lower than those for unsubsidized Direct Loans. Formerly called the Stafford Loan.

Unsubsidized Direct Loan—Federal student loan for which all students who file the FAFSA are eligible, regardless of need. Interest on unsubsidized loans begins to accrue immediately, and interest rates are higher than those for subsidized Direct Loans. Formerly called the Stafford Loan.

Workplace scholarships—Private scholarships awarded by companies to the children of employees.