Financial aid is based on the premise that the cost of attending college for a student is higher than the expected contributions from his family. The cost of attendance is calculated as the sum of the tuition, transport, room and board, books, supplies and other miscellaneous costs. The expected family contribution is subtracted from the cost of attendance to determine a student's financial need in a given year.
Financial aid that depends on a student's expected family contribution is known as need-based aid and cannot exceed the student's financial need. For example, if a student's cost of attendance is $5,000 and his EFC is $2,300, then his financial need is $2,700. Non-need-based financial aid is not dependent on a student's EFC, but is based on the amount of financial aid the student has received in a year.
Non-need-based aid is calculated by subtracting the total financial aid a student has received from his cost of attendance. If a student has received $3,000 in financial aid and he has a COA of $5,000, he is eligible for $2,000 in non-need based financial aid. An example of a need-based federal student aid program is the Federal Pell Grant. A student's financial need is determined by the college he is attending, not the federal government.