Introduction to Financial Aid

This section presents a basic overview of the structure of the financial aid universe, and discusses strategies you may be able to use to maximize the benefit of any financial aid for which you may be eligible.

First, it's important to understand how colleges and universities are financed. There are essentially two types of colleges: those that are state-supported and those that are supported primarily through private funds.

State-Supported Institutions

Popularly referred to as "state schools," each U.S. state funds one or more post-secondary institutions with state tax monies. No state chooses to fund its colleges entirely through taxpayer money, so each also charges tuition to cover the remainder of the cost. Because state taxpayers subsidize the cost of each student who attends a state college, students who reside in the state, and who pay taxes (or whose parents pay taxes) are charged a lower tuition rate than those students who reside out of state.

The key issues to remember are that ONLY state-supported colleges and universities have differential tuition rates dependent upon residency, and that the cost of a state school education isn't really cheaper than that of a private school education; it is simply subsidized by state taxpayer money. If you live in the state, you and your neighbors have paid the difference through your taxes.

Private Institutions

Private institutions receive no direct subsidies from the state government. They pay their operating expenses through a combination of tuition and interest income earned from their endowments. The vast majority of private colleges are predominantly "tuition-driven," meaning that they derive the majority of their income from student tuition.

Therefore, in order to remain competitive in attracting students, private institutions must find ways to subsidize the cost of tuition for students who might otherwise choose the less expensive state college.

Comparison Shopping (or Learning to Ignore the "Sticker Price")

Many families look at the fee structures for private colleges and automatically assume they would be unable to afford the cost. This is a mistake. By deciding not to apply for admission and financial aid, these families may be ruling out a viable option for their children, and may also be passing up a bargain.

In the past twenty-five years, private colleges have increasingly offered "discounts," funded from their endowments, to less wealthy students with high grades and test scores. These discounts can be seen as a counter to the state subsidy offered by state colleges. For strong students, this "merit aid" can easily make attending a private college LESS expensive than attending a public college.

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