Some colleges are expensive – like CRAZY expensive. Others still cost a pretty penny, but are reasonable. What gives? Well, not all colleges use the same criteria by which they charge. As we know, navigating the world of financial aid can be overwhelming. But there’s something to make sure we unpack properly, and that’s understanding the different methodologies used to calculate aid eligibility. In this post, we’ll explore the difference between the federal and institutional methodology and what they mean for students seeking financial assistance.

Federal Methodology

The federal methodology is used to determine a student’s eligibility for federal aid, including grants, loans, and work-study programs. This methodology takes into account a variety of factors, including family income, assets, and household size. The Free Application for Federal Student Aid (FAFSA) is the application used to determine a student’s eligibility for federal aid and is almost universally required by most colleges and universities.

One of the primary factors considered in the federal methodology is the Student Aid Index (SAI). This is the amount of money that the federal government expects a student’s family to contribute to their education expenses. This calculation is pre-set by the Department of Education, and when completing the FAFSA, the answers dictate the expected family contribution. The lower a student’s SAI, the more financial aid they may be eligible to receive. This isn’t true in all cases, however. In fact, I’d be willing to venture that it’s more common for a family’s SAI to not be the exact amount that college will cost.

In addition to the SAI, the federal methodology also takes into account a student’s dependency status, academic progress, and enrollment status. For example, students who are enrolled full-time may be eligible for more aid than those who are enrolled part-time. Similarly, students who are making satisfactory academic progress may be eligible for more aid than those who are not.

Institutional Methodology

While the federal methodology is used to determine a student’s eligibility for federal aid, certain schools use a different methodology for their institutional aid award. These are the schools, to be specific. These schools use the institutional methodology to award aid. You need to complete the CSS Profile in addition to the FAFSA to be eligible. The institutional methodology takes into account a variety of additional factors beyond the federal methodology. When it comes to assets, they will consider home equity, cash value life insurance, and they will ask about retirement plan balances. They’ll also ask about non-custodial parents in the CSS Profile.

The institutional methodology will also take into account a student’s financial need, although the formula used to calculate need will likely differ from the federal methodology. Some colleges and universities may use their own formula to determine need, which is why you need to complete a separate CSS Profile application for each school you apply to that requires it.

Key Differences Between the Federal and Institutional Methodologies

While both use the federal and institutional methodologies to determine financial aid eligibility, there are some key differences between the two. The types of aid considered are the primary difference. Federal-methodology colleges use the federal methodology to determine eligibility for federal aid. Specifically, you need to complete the FAFSA to qualify for things such as the Direct Loans or Pell Grants. In the event you’re applying to a school that uses the federal methodology, the school will use the FAFSA to also determine other types of scholarships that they can directly offer.

But the institutional methodology schools are different. They are far more likely to award institutional aid solely based on the CSS Profile, since it is a more in-depth look into a family’s financial position. Therefore, if you’re applying to an institutional school, you’ll need to complete both the FAFSA and the CSS Profile to qualify for federal and institutional aid.

The formulas used to calculate aid eligibility differ as well. The federal methodology uses a standardized formula that is applied to all students who submit a FAFSA, while the institutional methodology may use a school-specific formula that takes into account factors specific to that institution. It’s standard for federal schools, while you could notice differences in the institutional schools.

How does the institution reward aid?

That’s a great question, and I’m glad you asked. The amount of aid offered is likely to differ between the two methodologies. Let’s use an example.

Penn State University is a federal methodology university. They only require the FAFSA. Based on collegedata.com’s profile of 2020-2021 financials, here is an important factor to consider. Penn State offers, on average, 61% of need to their applicants. The total cost is roughly $38,000. If you have a federal EFC of $10,000, you have a need of $28,000. But PSU may not offer the full need required, therefore, your cost could be higher than the $10,000 of your SAI. There’s no guarantee, and you have to wait for the financial aid award letter to determine that.

University of Penn, an Ivy League school, is a bit different. Assuming that same family has an SAI of $10k (disclaimer – not all families will have the same EFC’s for federal & institutional). If the child is to go to Penn, the total cost is a whopping $86,000. But Penn meets 100% of financial need, so the cost would be far lower for that family.

Which Methodology Should Students Focus On?

For families seeking financial aid, it’s important to understand both the federal and institutional methodologies and how they may impact their eligibility for aid. That said, determining which methodology to focus on relies heavily on the school list. In general, students should focus on completing the FAFSA and meeting the eligibility requirements for federal aid. This is often the largest source of financial assistance for many students. It’s also the case that nearly any college requires the FAFSA.

However, it’s also important to research the financial aid options available at the colleges and universities you are considering. As I’ve mentioned before, collegedata.com is a great free resource to get started and see what schools require what forms.

Conclusion

I think it’s fair to say – there is no one size fits all for college and financial aid planning. Each family is different, each school is different, and each path is different. But depending on your school list, it’s paramount you understand the difference between federal and institutional methodology. A family’s financial position and a student’s intended major should dictate school choice. But more than anything, a plan to get into school and pay for it will pay major dividends.