The determination of financial need depends on two numbers:

(1) the Cost Of Attendance (COA) for your school (also called the school's budget) and
(2) the Expected Family Contribution (EFC), the amount of money your family is expected to contribute to your education.

Your financial need is the difference between the COA and EFC, and the amount of financial aid for which you are eligible will be based on this number.

Please note: Some colleges use an "institutional" need analysis using information generated from a form called 'The College Profile'. The 'Profile' analysis will result in an IEFC or Institutional Expected Family Contribution. This may vary from the FEFC - the Federal Expected Family Contribution. There are about 400 colleges and universities using the Profile (mostly the higher cost, more selective institutions). Some schools will use other data to calculate their own IEFC.

The school's COA will include tuition, fees, room and board, books and supplies, travel, and personal and incidental expenses. In many cases there is a standard fixed budget amount for some of these categories. But the budget amount for travel may vary depending on the student's home state. Likewise, room and board expenses may be reduced and travel expenses increased for commuter students.

Budget allowances are used only for determining the estimated expenses that a student will incur during the enrollment period. Actual costs will vary depending on the your particular lifestyle. If special circumstances should warrant a higher budget amount, consult your financial aid administrator, who is permitted to increase your budget, if appropriate, with documentation. For example, students with child care expenses or expenses related to a disability may be able to get their budget increased to compensate. If your books and supplies cost more than the amount in your budget, save your receipts and show them to a financial aid administrator.

Schools have limited funds available for financial aid, and they must determine how to best allocate the funds to their neediest students. Very few schools can afford to meet the demonstrated need of all their students, so most assume that all students and/or parents must pay a certain minimum amount, regardless of their need. Others give financial aid only to the neediest students. Moreover, your financial aid package might be reduced by any outside resources you receive. For example, if your parents have contributed money to a prepaid tuition plan, the money received from that plan toward the student's education will be subtracted from the determination of financial need. Other resources include VA educational benefits and outside scholarships.

The EFC is the sum of the student contribution and the parent contribution. Some schools (mostly private) expect both natural parents to contribute to their children's educational expenses, regardless of a divorce or any court orders to the contrary. In cases of divorce where the custodial parent remarries, the financial information for both the custodial parent and the step-parent must be included on the FAFSA as well as any child support and/or alimony received from the non-custodial parent.

The calculation of the expected student contribution is generally 35 percent of the student's assets and 50 percent of the student's prior year (yes, including summer) earnings. (The federal calculation is 50 percent of the net earnings above $2200 and 35 percent of the student's reported assets.)

The parent contribution depends on the number of parents with earned income, their income and assets, the age of the older parent, the family size, and the number of family members enrolled in post-secondary education. Income is both the adjusted gross income from the tax return and non-taxable income such as social security benefits and child support. The Higher Education Amendments of 1992 eliminated home equity from the EFC, but many private colleges and universities still use a parent's home equity as a way of rationing their school's own grant and scholarship funds. Money set aside for retirement in a pension plan such as a 401K, IRA, Keogh, or 403b is usually not counted as an asset. However, the funds contributed to a tax-deferred retirement program during the previous year must be included on the FAFSA as other untaxed income. In addition, an asset protection allowance shelters a portion of the assets from the calculation of the parent contribution. The asset protection allowance increases with the age of the parents to allow for emergencies and retirement needs.

A few things to note about the needs assessment formula:

(1) student assets are assessed more heavily than parent assets;
(2) student income is assessed more heavily than parent income; and
(3) in most cases the EFC will go down when the number of family members in school goes up.

It should go without saying -- honesty is the best policy. Tell the truth on your financial aid applications.