The terminology used in college financial aid award letters can be confusing. Here’s a quick guide to some frequently used terms:
FAFSA: The Free Application for Federal Student Aid tells you, based on your family’s income and expenses, what you’re expected to pay out of pocket for your son or daughter’s first year of college.
EFC: Expected Family Contribution, or the amount you and your student are expected to pay out of pocket for his or her first year of college.
Grant: An amount awarded for financial aid, either from the federal government (federal grant) or from a college (institutional grant) to attend that college. A grant is “free money,” meaning you don’t have to pay it back.
Institutional scholarship: Free money you don’t have to pay back that a college offers you to attend that school for the coming year. These scholarships can be merit-based (awarded because of your accomplishments in academics, a sport, music, or another area) or need-based (to supplement your EFC).
Private scholarship: A scholarship you apply for from an outside organization.
Pell Grant: Need-based free money from the federal government.
Perkins Loan: An amount of money a college will allow you to borrow from the federal government at a lower interest rate than other federal loan types.
Stafford Loan: An amount of money a college will allow you to borrow from the federal government at an interest rate the government sets. These can be subsidized (no interest accrues—is added to the balance—while the student is in college) or unsubsidized (interest accrues while the student is in college).
Parent PLUS Loan: An amount of money a college will allow parents to borrow from the federal government, at an interest rate the government sets, for their son’s or daughter’s coming year of college.
Private loan: An amount of money parents or students can borrow from a financial institution—if they’re credit-worthy—for the student’s coming year of college. The financial institution sets the interest rate. Unlike federal loans, you have to make payments on private loans while the student is in college.
Work study: An amount of money a college will pay a student for working at a qualifying job at that college. The student must find and apply for his or her own job.