What is Financial Aid, Anyway?

Financial aid seems like a straightforward concept. “Financial aid” should be money given to students to help them pay for college, right? Well, yes it is…and…no it’s not. Financial aid is not money “given” to the student. Unfortunately, when colleges use the term “Financial aid” they use it to refer to any of the following things:

  • Loans
  • Scholarships
  • Grants
  • Work-Study

Far from being “free money” given to the student -- 2/3 of financial aid nationally is offered in the form of student loans that must be repaid. The other 1/3 is made up of scholarships, grants, and work-study.

The most common forms of financial aid:

  • Loans allow you to borrow money to pay for your post-secondary education and related expenses. When you take out a student loan, you must pay back the money you borrow, as well as the interest payments you accrue on your loan. Interest is the money you pay to the lender in exchange for borrowing money. It’s calculated as a percentage of the unpaid loan amount borrowed.
  • Some common types of student loans are Federal Direct student loans issued directly to the students, parent loans for undergraduate students (called Parent PLUS loans), Grad PLUS (for graduate students), and private loans. To learn about the differences between federal and private loans, read this article.
  • Grants and scholarships are monetary awards used to pay for post-secondary education and related expenses. Grants and scholarships are “free money” – they don’t have to be paid back. Grants for college are typically need based, whereas scholarships may be based on either needs or merits (such as special abilities, hobbies, interests, ethnicities, religions, etc.).
  • Work-study programs are a form of federal financial aid. Work-study programs allow you to earn money from part-time work while you’re pursuing a degree. The “aid” comes in the form of finding you a job on campus. You can use the money you earn to help pay for your education and related expenses. Unlike a part-time job outside of the work-study program, there’s a cap on how many hours you can work and how much you can earn. (Limits vary depending on the institution.)

In order to qualify for Federal Student Loans and the Federal Work Study Program, you must apply for federal assistance through the Free Application for Federal Student Aid (FAFSA) program.

The federal government provides more than $150 billion in loans, work-study funds, and grants each year. For most students, the primary source of scholarships and grants is the college or university to which you apply. It is worth your time to apply for Federal Student Aid via the FAFSA even if you don’t qualify for federal grants because doing so makes you eligible for Federal Student Loans and potentially work-study programs.