What is Financial Aid?

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Financial aid is funding that can help you pay for college. You can receive it from the federal or state government or from private sources.

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4 Common Types

Most students use a combination of four resources to pay for college: savings, scholarships and grants, work-study, and loans. Financial aid includes the last three: scholarships and grants, work-study, and loans. Family savings are not considered financial aid because the money does not come from an outside source.

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Why It Matters

Financial aid is important because it makes going to college more affordable and accessible. However, colleges vary in how they award financial aid.

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How Does Financial Aid Work?

Anyone can apply for financial aid, regardless of the school they plan to attend, their area of study, their parents’ income, citizenship status, or academic performance. However, depending on each student's unique financial and academic circumstances, the amount and type of aid varies. For example, students from high-income families may not qualify for need-based aid.

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Key Steps

1. Outside Scholarships. The first step to getting financial aid is to search for outside scholarships.
2. FAFSA. Next, fill out the FAFSA (Free Application for Federal Student Aid). The FAFSA is a government form that collects information about your and your parents’ financial situation. The FAFSA is used to determine eligibility for financial aid from the government, your state and your school.
3. CSS Profile. The CSS Profile is another form that collects financial information. Some private schools use this form to award institutional need-based aid.

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Financial Aid Offers

Once you have submitted these forms, you will receive financial aid offers from the schools that accept you. A financial aid offer includes a breakdown of the different types of aid you are eligible for, including money in the form of grants, scholarships, work-study, and loans. The offer will also show your net price, which is the amount you will have to pay out-of-pocket to cover your college costs.

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Different Types of Financial Aid

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Overview of Grants as a Form of Financial Aid

‍Grants are a type of “free money” that does not need to be repaid. Grants may come from:

• The Federal Government: The federal government offers the Pell Grant and the Federal Supplemental Educational Opportunity Grant, both of which are for students with family incomes below a certain level.
• State Government: State governments typically offer grants and scholarships.
• Colleges: After accepting a student, colleges may offer merit-based aid and need-based aid, both of which are types of free money.

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Overview of Loans as a Form of Financial Aid

Unlike grants, loans must be repaid with interest. Interest is a percentage of the total loan amount that is added to the loan balance each year. For example, if you borrow $1,000 at an interest rate of 6%, you will have to pay $60 in interest after one year.

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There Are Two Main Types of Student Loans:

• Federal Student Loans: These loans are offered by the federal government and typically have low fixed interest rates and flexible repayment options. There are two types of federal loans: Direct subsidized loans (for which the government pays the interest until you graduate) and Direct unsubsidized loans (for which you are responsible for the interest from the time you receive the funds).
• Private Loans: These loans are offered by private companies and typically have higher interest rates and less flexible repayment terms.

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Tip: Federal loans should always be your first choice, if you need to borrow money for college.

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Overview of Scholarships as a Form of Financial Aid

Scholarships, like grants, are "free money" that doesn't have to be repaid. You can apply for scholarships throughout your education, from middle school through college. Scholarships may come from:

• The federal government
• State government
• Colleges: Colleges may offer merit-based aid and need-based aid in the form of scholarships.
• Private companies and organizations: Many companies and organizations offer scholarships to students.

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Overview of Work-Study as a Form of Financial Aid

Work-study is a federal program that allows students to work part-time to earn money. The federal government pays a portion of the student's salary, so colleges are more likely to hire work-study students.

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Deciding What Financial Aid is Best for You

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The best types of financial aid are grants and scholarships, because you do not have to repay them. The next best option is work-study, which allows you to earn money without incurring debt. If you need to borrow money, federal loans should be your first choice. You should only consider private loans as a last resort.

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When deciding which college to attend, consider all your financial aid offers carefully. The offer with the most financial aid is not necessarily the best choice. You should also consider the school's academics, location, and student experience. Think about how much debt you are willing to take on. If you can graduate from college debt free, that's ideal.

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Bonus Tip: Create a Level All account and use our scholarship finder to lower the cost of college! We’ve helped thousands of families like you lower the cost of college. Join the community today!

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By carefully exploring all your options, you can choose a college that is both affordable and a good fit for you.

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