How are financial aid packages determined?

Undergraduates are offered financial aid in the form of a 'package' — a combination of grants, loans, and work-study. The first step in determining a student's financial aid package is through the process of need analysis. There are two formulas for need analysis. The first is conducted by the federal government to determine eligibility for its programs. The second is sometimes conducted by colleges and universities to determine how they will distribute their own institutional aid.

The process of need analysis determines how much students and their families are expected to contribute from their own resources ('expected family contribution,' or EFC) and how much aid students are eligible to receive. When the federal government conducts a financial need analysis, it considers the family's income and assets (but ignores assets for families that make less than $50,000 a year), the family's size, the number of parents, the age of the older parent, and the number of other family members enrolled in postsecondary study. The federal formula typically expects a family contribution of approximately 5 percent of net worth.

The amount of financial aid an undergraduate qualifies for is determined by subtracting expected family contribution from the total price of attending the institution. Total price includes tuition, fees, room and board, and other expenses. The gap that exists between a family's expected contribution and the price of attending may be filled by a number of federal and state grant and loan programs, aid provided by institutions, and private sources of aid.