Financial aid makes it possible for most students to attend the college of their choice. The single largest provider of financial assistance in the United States is the federal government, via the U.S. Department of Education. State governments, institutions, and private organizations also provide students with financial aid through scholarships, grants, and loans. It’s important to understand the basics before delving into each source of aid. This section will boil this daunting topic down to the essentials.


What are the sources of financial aid?

The largest source of student financial aid is the federal government, but aid is available through a wide variety of other channels. It can be state- or institution-based. It can also be given by an individual, local society, or national organization. Students should start by applying for financial aid with the federal government and then try to supplement their federal financial aid packages with money from other sources.

  • The federal government: The U.S. Department of Education manages and distributes federal aid. Most federal aid is need-based, meaning that if your financial situation shows that you and your family cannot afford to pay for college by yourselves, you will receive aid. The U.S. Department of Education offers mainly need-based loans, grants, and work-study.
  • Your state of residence: Each state has a different protocol for administering aid to in-state students. Traditionally, at public institutions, students going to school in their home states will receive in-state tuition rates. These are less than what the school would charge out-of-state students. However, in-state tuition isn’t the only form of aid offered; there are also grants and scholarships for qualified students. Contact your state’s education department to learn more.
  • Your institution: Institutions typically have an endowment, or a pool of money formed by investments and donations. They can pull from it each year to provide scholarships and grants to eligible students. Institutions offer both need-based and merit-based grants and scholarships.
  • A private organization, bank, or credit union: This is where things get interesting. There is educational funding everywhere if you know where to look for it. Organizations such as Girl Scouts and Rotary Club may offer financial assistance to members who apply for scholarships. Your employer or your parent’s employer may have a financial aid program as well. Niche organizations also offer scholarships for off-the-wall things, like having red hair or being left-handed. Additionally, banks and credit unions offer private loans to students. The options are endless!

What kinds of financial aid can I get?

There are four main types of financial aid: loans, grants, scholarships, and work-study. In a given financial aid package, a student may qualify for multiples types of aid depending on financial need and academic merit. Most aid that comes from the federal government is based on financial need, while aid from other sources may be either need- or merit-based.

What are loans?

A loan is a sum of money borrowed from either the federal government or a private organization. The money is then used to help pay for school-related costs. Loans need to be repaid with interest. Federal loans offer more benefits than private loans.

  • Federal loans: There are two federal loan programs: the William D. Ford Federal Direct Loan Program (Direct Loan Program) and the Federal Perkins Loan Program. Direct Loans are managed by the U.S. Department of Education, while Perkins Loans are administered by individual institutions. You do not have to prove financial need to be eligible for some federal loans.
  • Private loans: These loans come from banks, credit unions, private companies, and even individuals. Their interest rates are higher than those of federal loans and dependent on your credit score. Many private loans are not eligible for loan forgiveness, deferments, or forbearance. You will likely begin repayment shortly after taking out the loans and will be responsible for all interest.

What are grants?

Grants are a form of funding awarded to a student to pay for school and school-related expenses. They do not need to be repaid. Often grants are need-based, meaning they are distributed based on a student’s financial situation.

  • Federal grants: There are four types of federal grants. Pell Grants and Supplemental Educational Opportunity Grants are need-based. TEACH Grants and Iraq and Afghanistan Service Grants are not.
  • Institutional grants: These grants are specific to each school and are often lumped in with scholarships. Institutional grants do not need to be repaid.

What are scholarships?

Like grants, scholarships are awarded to students and do not need to be repaid. However, they are often merit-based, meaning they are awarded to students who meet specific requirements: academic, artistic, athletic, cultural, ethnic, gender, religious, or another unusual characteristic. Scholarships are typically either privately- or state-funded, or institutional.

What is work-study?

Work-study is a federal program in which students work part-time for their schools (for example, at the school library or in a science lab) and, in return, earns money that can be applied to educational costs. Students must demonstrate financial need to be eligible for work-study. They will be paid at least federal minimum wage. There is a limit to how many hours students can work each week, so as not to interfere with their schoolwork.

Page last updated: 11/2016