A Federal Pell Grant is one of four need-based grants that are awarded by the federal government to low-income undergraduate students for college. These grants do not have to be paid back and can be used for tuition, fees, room and board and more. Because Federal Pell Grants are need-based forms of financial aid, the eligibility requirements include determining a student’s financial situation to prove a need for payment assistance.

The only way a student can apply for a Federal Pell Grant is to fill out the FAFSA, which will evaluate a student and his or her family’s financial situation. One extremely significant factor that will be calculated by the FAFSA is a student’s Expected Family Contribution (EFC). This EFC not only measures a family’s financial strength, but it will also determine the amount of money a student will receive from need-based financial aid awards.

To calculate the EFC, the FAFSA will look at the student’s income plus assets if he or she is independent, the parents’ income and assets if the student is a dependent, the family’s household size, and the number of family members that are currently attending postsecondary institutions, excluding parents.

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Students who have an EFC of 0 have the greatest need for financial aid. As the EFC increases to its maximum (5198 for the 2015-16 award year), the amount of money awarded decreases.

Because Federal Pell Grant funds are awarded through participating schools, the financial aid department of the student’s school will determine how much award money each student will receive.

To determine the Federal Pell Grant award amount, the school’s Cost of Attendance (COA) is taken into account—tuition, books, supplies, transportation, room and board, etc.

The college then uses the EFC and COA to determine a student’s full Financial Need. Financial Need is the difference between a school’s COA and the EFC. Although the COA might certainly vary from school to school, the EFC will not change based on the school a student attends.

So, the greater the disparity between the cost of attending a collegiate institution and the money that a family can spend on education, the higher the Financial Need.

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It’s also important to note that a student cannot receive more need-based aid than the amount of his or her Financial Need. For example, if the COA is $4,000 and the EFC is 1000, no more than $3,000 can be awarded in Federal Pell Grant Aid.