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The Critical Student Financial Aid Terms You Should Know

Nov 17, 2023

The language of financial aid is loaded with jargon and acronyms. Knowing and understanding the following terms will help put you ahead of the game.

The Basics

Dependent Student – A dependent student is one who is assumed to have the financial support of their parents. Their information must be included in the FAFSA application. For more info on Dependent Students, visit here.

Independent Student – A student who meets the Department of Education’s requirements to be considered independent – generally those who do not receive material financial support from their parents. Therefore, they do not need to include their parents’ information on their FAFSA application. For more info on Independent Students, visit here.

Contributor/FAFSA Contributor – A contributor is anyone who is asked to provide information on an applicant’s FAFSA. The FAFSA requires financial information from both independent and dependent students. For dependent students, additional financial information is requested from the person/people who have provided the most financial support to the student over the prior 12 months. As applicable to the student’s situation, the additional contributors for dependent students may include the parent(s), a divorced parent, and potentially the spouse of a remarried parent (stepparent).

Need-Based Aid – Financial aid that is offered based on the demonstrated financial need of the student, calculated as the difference between the Cost of Attendance and the Student Aid Index (formerly the Expected Family Contribution).  Ordinarily, this comes in the form of grants.

Merit-Based Aid – Financial aid opportunities based on a student’s skill or ability, academically or otherwise, and having nothing to do with financial need.  This typically comes in the form of scholarships.

Award Letter – The document the student receives directly from a college detailing the specifics of the financial aid being offered, including the types and amounts of each, any requirements for keeping the award, and the deadline for accepting the award.

The Process

FAFSA – The Free Application for Federal Student Aid is the form used to determine a student’s eligibility for federal need-based aid. For more info about the FAFSA, visit

FSA ID – This is the username and password that students and parents establish when creating an account to access and file the FAFSA form. This information can also be used to access and interact with many other U.S. Department of Education websites, including signing the MPN, completing loan counseling, and using the Public Service Loan Forgiveness Help Tool. For more info and to create an FSA ID, visit here.

IRS Form 1040 – The form that U.S. taxpayers use to file their annual income taxes. The FAFSA requires the reporting of the student’s income as well as a dependent student’s parental income from the “Prior-Prior Year” tax information.

Prior-Prior Year – The FAFSA form requires tax information from what’s known as the Prior-Prior Year to the Academic Year for which a student seeks financial aid. An easy way to remember this is to simply subtract 2 from that Academic Year. High school seniors graduating in 2024 who are applying for Academic Year 2024-25 would thus be required to file tax returns from 2022 (2024 – 2 = 2022 Prior-Prior Year).

DDX – The Direct Data Exchange is a new component of the FAFSA process that requires the automatic and verified upload of the student’s Prior-Prior Year tax return from the Internal Revenue Service directly onto the FAFSA. Students invite parents to provide their consent and approval to upload their tax information onto the form as well. This implementation eliminates the need for self-reporting income and tax information for all parties.

SAI – The Student Aid Index is the numerical output from the completion of the FAFSA. It is a calculation that takes the tax and other financial information students and parents enter into the FAFSA form and generates a figure ranging from -$1,500 to the full cost of attendance at a college. For more info about the SAI, visit this page. To estimate your SAI, use this free SAI calculator.

MPN – The Master Promissory Note is the legal document that lays out the terms and conditions for federal student loans, including the interest rate, repayment terms, and promise to pay. The MPN covers any federal loan made to the same borrower within 10 years of the first borrowing. Many students sign only one MPN to cover all the student loans borrowed from the federal government. For more info on the MPN, visit here.

Types of Aid

Grants – Grants are financial gifts from a university, state, or federal source that do not have to be repaid. Typically need-based in nature, most grants require students to complete the FAFSA to be eligible for them. For more info about federal grant programs, visit here.

Pell Grants – Federal Pell Grants are awarded to students who have demonstrated extreme financial need and have not yet acquired a bachelor’s, master’s, or doctoral degree. Pell Grants do not need to be repaid. To be eligible for a Pell Grant, students must file a FAFSA. For more info on Pell Grants, visit here.

Scholarships – Scholarships are awarded to students based primarily upon merit or other specific qualifications and can be used towards college tuition. They do not have to be repaid. Try this free scholarship search tool to find free money for college.

Work-Study – The Federal Work-Study program affords students an opportunity to earn money by working a part-time campus job or other form of part-time employment in the community. Although a Work-Study offer may appear as “Aid” on a financial aid award letter, it does not reduce the college bill. A Work-Study job is not guaranteed and some students may be able to find other jobs in their field of interest or at a higher wage. For more info on Federal Work-Study, visit here.

Student Loans – Student Loans are money that is borrowed to pay the college bill. They must be paid back with interest.

Federal Direct Student Loans – Loans made by the U.S. Department of Education. All students are eligible for Federal Direct Student Loans provided they complete the FAFSA form for each academic year for which they seek federal financial aid. Federal Direct Loans may be Subsidized or Unsubsidized. For more info about Federal Direct Student Loans, visit here.

Direct Subsidized Loans – A subsidized loan is available to any student who files a FAFSA and is determined to have financial need. Borrowers who receive Direct Subsidized Loans are not obligated to make interest payments on the loans while they are in college half-time, for the first six months after they graduate, and during deferment periods. For more info about Direct Subsidized Loans, visit here.

Direct Unsubsidized Loans – An “unsub” or unsubsidized loan is available to any student who files a FAFSA. Eligibility is not based on financial need. Borrowers who receive unsub loans are responsible for paying interest from the time the loan is made until it is paid in full. For more info about Direct Unsubsidized Loans, visit here.

PLUS Loans – Federal PLUS Loans are made to parents and graduate and professional students up to the full cost of attendance. For more info on PLUS Loans, visit here.

Private Student Loans – Student loans made by banks, credit unions, credit card companies, and other financial services firms using credit underwriting standards similar to those used for car loans, personal loans, and mortgages. Students often need a creditworthy co-signer to be eligible for a private loan.