- Loans
- Student Loans
ByJessica Walrack
Updated on September 30, 2022
Reviewed bySamantha Silberstein
Fact checked byJess Feldman
In This Article
View All
In This Article
- How Financial Aid Works
- Types of Financial Aid
- How To Get Financial Aid
- Is Financial Aid Worth It?
- Frequently Asked Questions (FAQs)
:max_bytes(150000):strip_icc()/FinancialAid-d54865ead84e49588b90cd5379378a92.jpeg "What Is Financial Aid? (1)")
Definition
Financial aid is funding to help college students pay for higher-education expenses such as books, tuition, fees, room and board, and supplies. It often takes the form of scholarships, grants, loans, and work-study programs.
Key Takeaways
- Financial aid offers college students and their families partial or full funding to cover the costs of higher education.
- There are multiple types of financial aid, including grants, scholarships, work-study programs, and loans.
- You can find out how much financial aid you can get by completing and submitting the FAFSA.
How Financial Aid Works
Financial aid helps cover the costs of college attendance so families don’t have to pay them in full.It can come from a variety of sources, including the federal government, state agencies, community organizations, corporations, foundations, high schools, and more. It most commonly comes in the form of grants, scholarships, loans (private and federal), and work-study programs.
Note
In the 2020-2021 school year—the most recent available data—the average annual cost for undergraduate tuition, room and board, and fees for first-time, full-time undergraduate students at a private nonprofit college or university was $54,500. At a public institution, the average cost was $25,700.
When you’re looking for financial aid for college, the process generally starts by learning an aid program’s requirements and submitting an application. The source of the aid will then review your application to determine if you qualify. If you do, they will calculate the amount you qualify for and the terms and conditions attached to it.
The qualifications for financial aid are typically based on merit or need. To qualify for merit-based aid, a student’s achievements, academic or extracurricular, are taken into account. Need-based aid depends on a student’s level of financial need, often determined by analyzing their family’s income, benefits, and assets. Whether you receive need-based or merit-based financial aid depends on the type of aid you apply for.
It's important to note that you must remain eligible for financial aid throughout your time at a college or university. When you receive financial aid from your college or university, you must stay eligible to continue receiving aid. Eligibility requirements vary per institution, but the main thing schools are looking for is that you maintain “satisfactory academic progress,” which often includes having a certain grade point average (GPA).
Note
In 1965, President Lyndon Johnson established the federal government as the primary provider of financial aid by implementing the Educational Opportunity Grant (EOG) Program. The federal government continues to be a main source of financial aid for U.S. college students.
Financial aid can come from a variety of sources, including:
- Federal government
- State agencies
- Community organizations
- Corporations
- Foundations
- High schools
Aid most commonly comes in the form of grants, scholarships, loans (private and federal), and work-study programs.
When you’re looking for financial aid for college, the process generally starts by learning an aid program’s requirements and submitting an application. The source of the aid will then review your application to determine if you qualify. If you do, they will calculate the amount you qualify for and the terms/conditions attached to it.
The qualifications for financial aid are typically based on merit or need. To qualify for merit-based aid, a student’s achievements, academic or extracurricular, are taken into account. Need-based aid depends on a student’s level of financial need, often determined by analyzing their family’s income, benefits, and assets.When looking over a family's financial picture there is a two-year look-back period.
Whether you receive need-based or merit-based financial aid depends on the type of aid you apply for.
Types of Financial Aid
Financial aid comes in many forms and is designed to help in different ways. But you don’t have to choose just one type of aid. You can often combine multiple types to cover your expenses.
| Type | Qualification | Example | |
|---|---|---|---|
| Grants | Gift | Need-based | Pell grant |
| Scholarships | Gift | Merit and need-based | College Board opportunity scholarships |
| Work-study programs | Earn | Need-based | Federal work-study program |
| Federal student loans | Borrow | Need-based | Direct loans |
Grants
Grants are need-based aid programs that provide free money to students for higher education expenses. One highly common need-based grant is the Pell Grant, which is usually awarded to undergraduate students who show a high level of financial need. The Pell Grant offers amounts up to a yearly maximum, which is $6,895 for the 2022-23 award year. Grants are also offered from a variety of nongovernment sources. In most cases, the money offered from grant programs typically doesn’t need to be repaid as long as the program requirements are fulfilled.
Scholarships
Scholarships are financial aid programs awarded to students who meet the requirements set by the sponsoring party. Scholarships can be need based or merit based.
Full scholarships cover all of a student’s tuition expenses and textbooks, and they also may provide funds for living expenses. Partial scholarships, on the other hand, only pay for a portion of a student’s college expenses.
Note
The College Board has a Scholarship Search library that allows you to scan through over 6,000 scholarship programs offering more than $4 billion in aid.
Work-Study Programs
Work-study programs offer qualifying college students part-time jobs to help pay for their education. The federal work-study program encourages work that’s related to your studies or that serves the community. To be eligible, you must:
- Be an undergraduate, graduate, and professional student
- Demonstrate financial need
- Attend a school that participates in the federal work-study program
Federal Student Loans
The federal government offers a variety of student loans that can be used to pay for college expenses. While you'll pay interest, these loans can offer benefits over private loans, such as fixed interest rates, loan forgiveness programs, postponement options, and income-driven repayment plans.Private student loans may also be an option, however, they don’t offer the same features and protections as federal student loans.
How To Get Financial Aid
You can apply for financial aid by completing the Free Application for Federal Student Aid (FAFSA). The FAFSA is a form used to determine your eligibility for financial aid from the federal government, many state governments, and most colleges.
When you submit the FAFSA, there are several factors that determine your eligibility, including:
- The size of your family
- Your year in school
- The cost of attendance
- Your expected family contribution (EFC), which is calculated based on your family’s income, assets, and benefits
Note
FAFSA applications open on Oct. 1 of each year for the following school year and close on June 30 at 11:59 p.m. CT. (or 12:59 a.m. EDT) at the end of each school year. For the 2022-23 school year, the FAFSA became available on Oct. 1, 2022, and must be submitted by no later than June 30, 2023. It is best to apply as early as possible but no later than the school year’s deadline.
After you submit your application, you can check your status using the Federal Student Aid (FSA) ID that you receive. You will then receive your Student Aid Report. Your aid report will explain all of the types of aid you qualify for, the amounts of each, and the leftover costs you can expect to pay for the year. If you are considering more than one college, you’ll be able to review the aid offers from each school and accept the one that suits you best.
The Federal Student Aid office recommends choosing aid in this order:
- Free money (scholarships and grants)
- Earned money (work-study programs)
- Borrowed money (federal student loans)
The financial aid office at your chosen school will often apply your aid to your outstanding balance and send you the remaining balance. If you still have an outstanding financial need, you can seek out financial aid from organizations with programs not included in the Student Aid Report.
Is Financial Aid Worth It?
Financial aid can help to lower the costs of your college education, reducing the amount you and your family have to pay or borrow. Choosing which aid to apply for will depend on a case-by-case basis. Generally, though, grants and scholarships are preferred, as you don’t have to pay them back in most cases. However, federal loans can also offer a more accessible and affordable alternative to private loans.
If you receive financial aid award offers from more than one school, look for the one that provides you with the most gift-based aid, as you won’t have to pay it back down the line.
Frequently Asked Questions (FAQs)
What is the maximum income to qualify for financial aid?
Maximum income limits will vary depending on the source of the financial aid you are seeking. However, when seeking federal student aid, there is no income limit. Instead, when you submit the FAFSA, many factors will be taken into consideration to determine your eligibility, including the size of your family, your year in school, the cost of attendance, and your EFC.
What is financial aid disbursem*nt?
Financial aid disbursem*nt refers to the process of a financial aid source sending approved financial aid to a recipient. In many cases, the funds go directly to a student’s college to cover the costs. In some cases, though, they may be sent to the student. Disbursem*nts are typically received in two or more installments.
What financial aid is available for graduate students?
Graduate students may be eligible for various types of federal student aid including Pell grants, the federal work-study program, PLUS Loans, and Teacher Education Assistance for College and Higher Education (TEACH) grants. They may also qualify for aid from their school, state government, employer, foundations, and other organizations that provide scholarships.
Is there a limit on how much financial aid you can receive?
The maximum amount of financial aid you can receive depends on the program and your level of need. For example, when you fill out the FAFSA, your school subtracts your EFC from your cost of attendance (COA) to determine your financial need, becoming your maximum limit for financial aid. Further, specific programs often have limits. The Pell Grant, for example, has a yearly maximum as well as a limit on how many times you can receive the grant in your life.
What is a financial aid warning?
A financial aid warning is an alert to warn you that you are not currently meeting the standards to remain eligible for federal and other financial aid programs. If you don’t come into compliance within a given period, your aid will be suspended. You must meet the basic eligibility criteria throughout the time you’re receiving aid, not just when you apply.
What GPA is required for financial aid?
The GPA requirement for financial aid will vary depending on your source of financial aid and possibly your school. When it comes to federal aid, your college defines the GPA requirement you must meet to achieve satisfactory academic progress. To find out the limit, you’ll need to check with your school’s financial aid office or website.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
National Center for Education Statistics. "Price of Attending an Undergraduate Institution."
Federal Student Aid office. "If You Want to Keep Receiving Your Federal Student Aid, Make Sure You Stay Eligible."
National Association of Student Personnel Administrators. "Federal Financial Aid Policy: Then, Now, and in the Future."
Federal Student Aid. "Types of Financial Aid: Loans, Grants, and Work-Study Programs."
Federal Student Aid. "Federal Pell Grants Are Usually Awarded Only to Undergraduate Students."
College Board. "Search for Scholarships—Big Future."
Federal Student Aid Office. "Federal Work-Study Jobs Help Students Earn Money To Pay for College or Career School."
Federal Student Aid. "What Are the Deadlines for Filling Out the FAFSA Form?"
Federal Student Aid. "SAR: Student Aid Report."
Federal Student Aid Office. "Accepting Financial Aid."
Federal Student Aid. "Receiving Financial Aid."
Federal Student Aid Office. "What Is a Disbursem*nt?"
Federal Student Aid. "Packaging Aid."
Federal Student Aid. "Regaining Eligibility."
Rowan-Cabarrus Community College. "Financial Aid Warnings & Probation."
Federal Student Aid. "Staying Eligible."
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