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There are two categories of financial assistance: need-based and merit-based. To qualify for need-based aid, need must be established. Merit-based aid is awarded for the qualities and qualifications of the student in such areas as sports, scholarship, music, drama, journalism, and so on. The calculation of the Expected Family Contribution (EFC) drives need-based eligibility.

Beginning October 1st each year, high school seniors can apply for financial aid for their freshman year of college. So how does it work? Student financial aid is funding to help the student pay for higher education. It comes from four sources: The Federal government, State governments, the colleges and universities, and private corporations and organizations. The greatest amount of aid comes from the Federal government and over half of that is in the form of student loans.

Everyone agrees that parents need to save for their child's college education and to start that process early. However, no specific college saving strategy will work well for every family. The right approach is dependent on several variables to include tax bracket, the student's age, anticipated financial aid (both need and merit), and how much control parents wish to retain over their investments.