By: Kathryn Boonstra
Paying for college involves navigating a complex landscape of federal, state, institutional, and private financial aid (“aid”). These types of aid differ in their eligibility criteria, funding sources, awarding procedures, and benefit types, and new policies and programs are regularly introduced or retired. Not only do these varied requirements and stipulations present barriers for students, but they also create challenges for researchers, policymakers, and practitioners adjacent to financial aid. To evaluate programs, interpret results, and offer recommendations successfully, researchers studying financial aid must first parse the jargon and complicated formulas that govern the world of financial aid.
At the SSTAR Lab, our research team has benefited immensely from close collaboration with professionals in the Division of Enrollment Management, whose expertise has helped demystify the world of financial aid administration. Our partnership with the Office of Student Financial Aid has helped researchers on our team conduct more informed, responsive, and contextualized analysis on programs such as the Wisconsin Teacher Pledge and Bucky’s Tuition Promise. In this guide, my hope is to “pay it forward” to other researchers by outlining some key terminology and concepts that have been helpful in our research on financial aid design and administration. Though far from comprehensive, I hope this guide will help both novice and experienced researchers as they conduct and consume research on financial aid. The College Cost Transparency Initiative and the Federal Student Aid Handbook offer additional resources that may be helpful to resources.
Types of Aid
There are three primary types of financial aid: loans, gift aid (i.e., grants and scholarships), and federal work study, shown in Table 1.
Eligibility
Financial aid programs may use different methods to determine eligibility. Some aid is need-based, meaning eligibility is determined by students’ financial need. Financial need is calculated using two figures reported on the federal financial aid application, the Free Application for Federal Student Aid (FAFSA): cost of attendance and the Student Aid Index (formerly Expected Family Contribution).
Other aid, often called merit-based, is awarded according to other criteria, such as academic performance, extra-curricular activities, or affiliation. Some programs, often called hybrid or need-within-merit, include both need and merit criteria to determine eligibility.
Geography may also determine eligibility. Promise programs are often place-based, meaning they are offered to all students from a specific geographic location or attending a particular institution.
Cost of Attendance
Cost of Attendance (COA) is the college-calculated average cost of attending a particular institution. It accounts for tuition and fees, as well as estimated costs for room and board, books and educational supplies, transportation, and personal expenses. COA may also include allowances for credit-bearing study abroad programs, fees associated with professional licensure or certification, and expenses related to disability or care for dependents (see Figure 1). Colleges calculate and report cost of attendance annually, as required by Section 472 of the Higher Education Act, and these calculations may differ depending on students’ family status, living situation, dependency status, and other factors.
In most cases, students cannot receive financial aid beyond the amount of their COA. For this reason, COA is often referred to as a student’s “budget.” In some cases, financial aid administrators are permitted to increase students’ cost of attendance on a case-by-case basis through a process known as professional judgment. Additionally, under the revised Federal Student Aid Policy, some of the neediest students may be eligible to receive financial aid in excess of their COA.
Student Aid Index (formerly Expected Family Contribution)
The Student Aid Index (SAI) is a calculation used to determine the amount of federal financial aid a student is eligible to receive for college. It is calculated using information provided on the Free Application for Federal Student Aid (FAFSA®), including income and assets of the student, parent(s), and/or spouse, as applicable. There are different formulas for calculating SAI for dependent students, independent students without dependents, and independent students with dependents. Some students may also qualify for a simplified SAI formula or an automatic negative SAI if they meet certain criteria. Most need-based federal and state financial aid programs consider SAI in determining eligibility.
SAI replaced the previous measure used to estimate aid eligibility, Expected Family Contribution (EFC). The change from EFC to SAI was mandated by the FAFSA Simplification Act, originally passed in December 2020 and effective beginning with the 2024-25 school year. The change reflects the reality that EFC is not necessarily the amount that families can or will pay for higher education. SAI also uses a different methodology to calculate student need, incorporating fewer variables and requiring fewer questions on the FAFSA. It also allows the neediest students to be eligible for aid in excess of COA by assigning them a negative SAI. While some students may receive less federal aid under the new SAI calculation compared to the previous EFC formula, most students will receive similar or larger amounts of aid.
Financial Need
Financial need is calculated by subtracting SAI from cost of attendance. This amount determines how much need-based aid a student can receive. Most federal and state financial aid programs are need-based, including Pell grants, Direct Subsidized loans, and Federal Work Study. Additionally, many “promise” programs commit to meeting financial need for eligible students through some combination of grants, scholarships, and work study. Because need accounts for both expected costs and income and assets, it can be a useful measure of the amount of financial support a student requires to attend. However, financial need does not necessarily reflect the true financial burden of attending college, as many families are unable or unwilling to contribute the amount estimated by their SAI and students’ costs may exceed the amount budgeted in COA. For this amount, “net price” is often a better indicator.
Net Price
Net price is the actual price students pay—not the advertised “sticker price”—of attending college. It is equal to the amount of cost of attendance remaining after subtracting all gift aid (i.e., grants and scholarships). Unlike financial need, net price does not account for students’ SAI. Instead, net price is calculated by subtracting all gift aid from the total cost of attendance and reflects the actual amount a student should expect to pay. In Figure 1, the $11,000 gift aid award is subtracted from the full cost of attendance ($35,000) to yield a $24,000 net price. Students can borrow above their estimated net price, and families can contribute more or less than the amount estimated by their SAI.
Need not Met by Gift Aid (NNMBGA)
In some cases, it may be helpful to measure the portion of a student’s calculated financial need that remains after subtracting gift aid. This number is referred to as need not met by gift aid (NNMBGA). NNMBGA is not used to determine eligibility for aid. It is primarily used by researchers or administrators to analyze costs not covered by gift aid or families’ expected contributions.
Unmet Need
Finally, unmet need is another calculation used by financial aid administrators and researchers to assess how much additional aid students can receive. Unmet need is different from NNMBGA because it accounts for most types of financial aid, including gift aid, subsidized loans, and work study. To calculate unmet need, subtract SAI and all financial aid—except for private and unsubsidized loans—from the cost of attendance. For administrators, unmet need reflects the amount of additional aid that can be added to a student’s financial aid package, with the exception of private and unsubsidized loans, which can be borrowed up to the amount of COA.
Figure 1. Cost of attendance, need, net price, need not met by gift aid, and unmet need
