FA questions: loans in NPCs, and merit aid with need-based aid

Got a couple of questions about financial aid – I think I know the answers, but just wanted to double check.

First: We ran the NPCs for a number of schools, and some of them included a loan component. This was typically a pretty small amount, say $3500. What I’m wondering, is this the Federal Direct Loan (perhaps called Stafford?), and are you then only allowed to borrow that amount?

Those loans have limits of $5500/6500/7500, depending upon the year in school. But as I understand it, these loans are done through the school, and they say how much you can borrow. So if the NPC indicates a loan amount of $3500, you can’t borrow more (under this program)? And if there is no loan indicated, you can’t borrow any amount? (This may only apply to schools where all financial aid is need-based.)

Second: At schools that give merit aid (in addition to need-based aid), how is any merit aid/scholarship considered in terms of the need-based aid? That is, is it on top of the need-based aid, or does it only offset it? (The latter seems a little odd – it wouldn’t actually decrease the net COA, although it may change some of it from loans/work to scholarship.)

As I understand things, this can vary, and depends on the school and the scholarships.

Thanks.

Sometimes both. The school may apply need-based aid first to student contribution (i.e. the student loans and student work earnings that are expected) and unmet need, but then reduce grants from the school before reducing parent contribution.

Examples:

http://financialaid.stanford.edu/aid/outside/
https://students.ucsd.edu/finances/financial-aid/types/scholarships/

However, other schools may do it differently, and some may have different rules for different scholarships.

For the loans, a freshman can borrow $5500, with a maximum of $3500 of that subsidized. Depending on your financial need, all of it might be unsubsidized, but usually you’ll see $3500 subbed/$2000 unsubbed in the NPCs. Yes, that’s the max of THAT type of loan. Some students also receive Perkins loans through the school, and some NPCs will include PLUS loans that the parents can take out. If the PLUS loan isn’t included on the NPC, it’s likely still available.

Whether the merit reduces the need grants you are awarded really depends on your need. If your COA is $50k and your EFC is $15k, the NPC is trying to fill that $35k gap. You are always going to be dealing with $50k COA - (merit+loans +grants) = $15k EFC. It’s the stuff in the ( ) that will change, but the NPC is trying to make the combo = $35k. If it is less than $35k, you’ve been ‘gapped’ for aid, and you need to add that amount to the $15k EFC. If it exceeds $35k because the merit is over $35k, then you’ll get to reduce your EFC or use the loans to meet that EFC.

Ex: 1) $50k COA - ($20k merit + $5k need grant + $5500 loan) = $15k EFC + $4.5k gap
2) $50k COA - ($0 merit + $15k need grant + $5500 loan) = $15 EFC + $14.5 gap

Higher need grants don’t necessarily mean you are not gapped. It’s rare that a school will meet that full need with grants. Usually there will be loans included and often some amount gapped. That gapped amount might be partially met with work study or other grants like SEOG, but it really matters how high the need is and what resources the school has.

Outside scholarships can also reduce need and the amount of subsidized loan can then change because of that.

Whether merit aid and outside scholarships reduce need based aid or replace certain components of the aid is school specific. It can be hard to tell from the websites, sometimes you have to call the school.

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Second: At schools that give merit aid (in addition to need-based aid), how is any merit aid/scholarship considered in terms of the need-based aid? That is, is it on top of the need-based aid, or does it only offset it? (The latter seems a little odd – it wouldn’t actually decrease the net COA, although it may change some of it from loans/work to scholarship.)
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Admissions generally awards merit, so the award will often come BEFORE FA is even calculated.

So…imagine this scenario when applying to a school and applying for aid…

School A sends an acceptance, and with the acceptance (or soon after) comes a mention that your child has been awarded a $15k per year merit scholarship.

Let’s say you have a $20k EFC and the school has a COA of $60k

$60k = COA

$15k = merit scholarship

$45k = “adjusted COA” (I just made up that term to create the proper image)

$45k = “adjusted COA”

$20k = EFC

$25k = Determined Need

At this point, it’s unknown how the school will give aid.

If it’s a school that “meets need” then it may give $25k of aid as a mix of grants, loans, and work study.

If it’s a school that doesn’t meet need, then it may only give a loan and work study…or maybe also a small grant, but still leave you with a gap.

Many schools will NOT remove loans in place of merit. many will just reduce grants…particularly when its institutional merit… A few well-endowed schools will remove loans, but only if the merit is from outside.

Schools often use THEIR merit as a way to “spread aid around”…meaning that a student who gets merit will “free up” grant money for someone else.

Different schools have different policy on combining merit aid and need based aid. For Umich, they would first take out unsubsidized loan, then subsidized loan, then workstudy, and finally grant when merit aid (internal or external) is added. They just kept revising the financial aid package throughout the summer until all aids were settled. We have seen the grant and loan money went up and down a couple times during the process. But at the end, they simply offset all the loans and workstudy aids (and then some grant) by all the merit scholarships my D received in freshmen year. With the tuition increase and expiration of non-renewable scholarship, my D’s sophomore FA has some workstudy remained plus a few hundred dollars in loan.