Students begin the financial aid process by filling out the Free Application for Federal Student Aid (FAFSA) which is available online. In order to qualify for any of the U.S. Department of Education's (ED) grant, loan, or work-study programs borrowers must complete the FAFSA. The FAFSA also servers as a student's application for many State of Michigan scholarship and grant programs.

ED uses the FAFSA to generate a Student Aid Report (SAR) which is sent to both the applicant and the school(s) listed on the FAFSA. Among other things, the SAR uses several formulas to determine the student's Expected Family Contribution.
  

The Expected Family Contribution (EFC) is the amount that the government believes your family should be able to contribute to your education for one year. EFCs can range from zero to over $50,000.

Your EFC may or may not accurately reflect the amount you believe your family can contribute to your education. This is the government's way of implementing an equitable process to determine one student's need compared to another.

Federal Student Aid's FAFSA4caster can be used to provide an estimated EFC. This is a free tool that provides assistance to students and their families in planning for college.
  

Each college that you select on the FAFSA will receive a copy of your SAR containing your EFC. Financial aid administrators will use your EFC to assemble a financial aid package. Schools use their calculated cost of attendance minus your EFC and any other scholarships to determine your need. The goal of any financial aid office is to try to use limited resources to fill the need left over as determined by a student's EFC.

A financial aid package may include federal and state grant, loan, and work-study programs. It may also include a school's own unique financial aid program. The financial aid package will be sent to the student in a Financial Aid Award Letter.

Some schools may require the student to return the award letter, accepting or declining the financial aid being offered. Other schools may only require the student to return the award letter if there are any changes that the student requests.

Example

John Doe fills out a FAFSA for XYZ University. Both John and the university receive a copy of his family's EFC. As it turns out John's EFC as determined by the FAFSA is $3,500. Additionally, John receives a scholarship for $500. The school assembles the following financial aid package:

XYZ University sends out an award letter with the aid as outlined above asking John Doe to return the award letter stating which aid he plans on taking. John compares this financial aid package with other financial aid packages from other postsecondary institutions to determine the true costs and benefits between the different schools.