15 Confusing Financial Aid Terms You Need to Know

Navigating the world of college financial aid doesn't have to be complicated once you know the relevant terms.

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Updated May 28, 2024
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If you or your child is attending school to earn an advanced degree, chances are good that you'll need to figure out how to cover the costs of higher education. Unfortunately, navigating the financial aid world can be very confusing and you’ll be faced with a lot of unfamiliar definitions and phrases.

You don't want to choose the wrong funding sources or miss out on opportunities to make your education more affordable. Here are 15 financial aid terms that you need to know about to help you borrow wisely and well.

Award year

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Award year refers to the particular academic year that you're securing financial aid to pay for. Typically, the award year is a 12-month period that starts on July 1 of one year and stretches until July 30 of the following year.

Cost of attendance (COA)

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Cost of attendance (COA) is the total amount that it costs to attend a particular academic program for the school year. Schools calculate COA to include tuition, fees, room and board, living expenses, transportation, books, supplies, loan fees, and other miscellaneous expenses. You are generally allowed to receive financial aid up to the total estimated COA.

Direct Loans

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When you are determining how to get a loan to cover school costs, consider Direct Loans. These are issued by the Department of Education and offer many borrower benefits, including affordable fixed interest rates as well as options for loan forgiveness.

  • Direct Consolidation Loans. Combines multiple federal loans into one with an interest rate equal to the weighted average of the consolidated loans. This differs from student loan refinancing which is used to repay past debt.
  • Direct PLUS Loans. Available to parents of undergrads as well as to graduate or professional students.
  • Direct Subsidized Loans. Need-based loans available to undergrads. They have subsidized interest, so you won't owe interest while in school or if loan payments have been deferred.
  • Direct Unsubsidized Loans. Not based on financial need and available to undergrads and graduate students but interest will accrue while you’re enrolled in school.

Expected Family Contribution (EFC)

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Expected Family Contribution (EFC) is an index number that is designed to determine if you are eligible for federal financial aid and how much financial aid you can receive. Your EFC is determined using a formula that takes into account family income and assets, the number of children in your family, and unemployment or Social Security benefits.

Although your family may not be able to make the expected family contribution, your financial aid award is usually reduced based on your EFC.


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Free Application for Federal Student Aid (FAFSA) is the application that you must complete in order to apply for any type of federal student aid. This includes grants, work-study programs, and loans. 

Many states and college programs also require you to complete the FAFSA. The FAFSA can be completed online and must be submitted each year you need financial aid.

6 Surprisingly Simple Moves To Boost Your Credit 

Federal student aid

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Federal student aid refers broadly to all financial aid issued by the government including grants, work-study programs, and loans issued by the Department of Education. In order to be eligible for federal student aid, students must complete the FAFSA.


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Grants are financial aid that does not have to be repaid. Usually, these are need-based, and you typically must have a low income or limited resources in order to qualify. Grants can be issued by federal or state governments as well as private organizations. The Federal Pell Grant Program is the largest need-based grant program available to undergrads.

Half-time enrollment

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Half-time enrollment is a type of enrollment status. Students who take half of the expected course load are in half-time enrollment. Students who take less than half of the expected course load fall below half-time enrollment. 

If you are enrolled only half-time, this could affect the amount of financial aid you are eligible for. If you drop below half-time enrollment, you will generally need to begin repaying student loans after a short grace period.

Income-driven repayment (IDR)

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Income-driven repayment (IDR) plans are a repayment option available to borrowers with federal student loans. 

They allow you to cap payments as a percentage of income and eventually have the remaining balance of your loan forgiven after 20 or 25 years of making payments. This type of flexible, affordable repayment plan is one of many benefits available to borrowers with federal student loans.

Private student loans

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Private student loans are loans made by private lenders rather than the federal government. Unlike federal loans, your credit and income are both considered in determining eligibility for private student loans. If you don’t have good credit or much money, you may need a cosigner to be approved.

Private loans can also have fixed or variable rates, which are affected by your credit score and may be higher than federal student loan rates. They also don’t come with all the borrower benefits federal loans do, such as income-based repayment options.

Room and board

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Room and board refers to the cost of food and housing, such as an on-campus dorm room and on-campus meal plans. It can also include the estimated cost of off-campus rental housing near the school as well as groceries if you don’t live on campus or use the school's dining plan.

While schools offer fixed costs for on-campus room and board, you will have to do some homework to estimate off-campus room and board costs when figuring out how much financial aid you’ll need.

Satisfactory academic progress (SAP)

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Schools define satisfactory academic progress (SAP) through a combination of requirements, including keeping a minimum grade point average (GPA), completing a percentage of attempted credits, or making progress toward completing a degree within a certain time frame. 

You must fulfill your school’s SAP requirements to remain in good standing and keep your eligibility for financial aid.


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Scholarships are financial gifts intended to help you fund your education that you do not need to repay. Scholarships may be awarded based on financial need, academic merit, or participation in a certain group or organization, and can be awarded by governments, schools, or private organizations.


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Tuition is the amount of money that you owe to a school in exchange for being able to attend class and earn a degree or certificate. It doesn't include books or other educational materials. 

Some schools charge tuition by credit hour while others charge a flat fee. Even in programs with a set fee, there's usually a minimum and a maximum number of credit hours you can complete per semester covered by tuition.


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Federal work-study is a type of financial aid available to full or part-time students. It provides for part-time on-campus or off-campus employment while you are enrolled in an undergraduate educational program. The jobs are typically related to your field of study and you must demonstrate financial need to be eligible for a work-study program.

Bottom line

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Understanding these financial aid terms will help you figure out how to best fund your education. They can also help you learn how to apply for student loans, grants, and other financial aid to make your schooling as affordable as possible.

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Author Details

Christy Rakoczy

Christy Rakoczy has a Juris Doctorate from UCLA Law School with a focus in Business Law, and a Certificate in Business Marketing with an English Degree from The University of Rochester. As a full-time personal finance writer, she writes about all things money-related but her special areas of focus are credit cards, personal loans, student loans, mortgages, smart debt payoff strategies, and retirement and Social Security. Her work has been featured by USA Today, MSN Money, CNN Money and more, and you can learn more at her LinkedIn profile.