Welcome to your crash course in student financial aid, led by a former Financial Aid Specialist at a private, not-for-profit university. Along with working in financial aid, I also went to college for six years and am currently paying off federal student loans.
Financial aid confuses many students, but I’m here to help.
Quick Navigation
- Basic Aid Classifications
- Grants
- Scholarships
- Loans
- Federal Work Study
- Employee Tuition Assistance
- Quick Recap
This post is a basic introduction to financial aid available to college students in the US. It is not all-inclusive, and many concepts presented here are simplified. Please speak with a Financial Aid Administrator at your school to learn more about your specific situation and eligibility for student aid.
Basic Financial Aid Classifications
Student financial aid encompasses two main types of aid: gift aid and self-help aid. Gift aid is money students do not have to pay back, like scholarships and grants, while self-help aid refers to money you have to work for or pay back, like work-study and loans (more on these in a minute).
To complicate things further, some aid types fall into both categories, like employer tuition assistance.
We can also categorize student aid by its funding source. Institutional, private, federal, state, city, and donor funds can all be funding sources for aid. Each of these sources of aid comes with different requirements for applying for and keeping aid, and there is no centralized information source for all these different funds.
We can also classify financial aid as need-based or non-need-based.
Need-Based vs. Non-Need-Based Aid
You may hear people in the educational and student financial aid world referring to an aid source as need-based. They mean that recipients of need-based financial aid are selected based on their financial situation.
Students with more perceived access to finances to pay for school are considered less in need of financial assistance than those with less perceived access to finances. I’m using the word “perceived” here because the calculation of need depends completely on the aid you are applying for.
Need-based aid is reserved for students with the greatest perceived need or the least perceived access to money to pay for school.
Non-need-based aid is not based on the student’s financial ability to pay for school. Recipients of non-need-based aid can be selected based on athletic ability, academic achievement, skills, degrees or majors, location, ethnicity, hobbies, and more. How students are selected for non-need-based funds depends on the aid you are applying for.
Now that we have covered need vs. non-need-based aid, let’s go back to our discussion on the different types of aid. As you investigate student financial aid, you’ll come across these types of aid: grants, scholarships, loans, work-study, and employer assistance. As I talk about each of these major types of aid, I’ll tell you about their common funding sources.
Grants & Scholarships
Scholarships and grants are very similar types of financial aid. Both are types of gift aid, making both great options for paying for school. Students must apply for scholarships and grants, but their application processes differ.
The major differences between grants and scholarships are how eligibility is calculated for each and funding sources.
Grants
Grants are typically need-based, with eligibility primarily focusing on the student’s financial need. Students with greater financial need will typically have access to more grant money than those with less financial need.
Because grant eligibility often relies on financial need, grant applications typically require in-depth information on a student’s (and their parents’ or guardians’) financial situation. For example, grant applications may ask if you own your own home, how much taxable income you earn, and if you experience any large expenses throughout the year.
Grants can be funded through federal, state, institutional, private, and donor funds, but the most common grant, the Pell Grant, is federally funded.
Scholarships
Unlike grants, scholarships are typically not need-based and instead focus on things like academic achievement, extracurricular activities, hobbies, and fields of study. There are scholarships for every interest and hobby, and thousands, if not hundreds of thousands, are out there.
Scholarship applications vary greatly, but you can expect to fill out an essay or questionnaire when you apply. Most scholarship applications try to understand who you are and what you hope to do with your education.
Be prepared to write essays for scholarship applications, but don’t let that scare you away! Take your time and ask for writing help if you need it. Scholarships are an incredible resource for students. I have many friends who paid for their entire college education using scholarships!
Scholarship funding sources are far and wide. Institutions (like your university) offer scholarships, as do organizations, companies, non-profits, families, and individuals.
Pro tip: There are a lot of scam scholarships and grants out there, so be careful. A scholarship or grant application should NEVER ask for bank or credit card information. They should never ask you to pay them first.
Student Loans
Student loans are a very popular avenue for paying for school. If you’ve been watching the news over the last few years, you’ve probably heard about the ongoing (failed) negotiations for student loan forgiveness in the White House. I’m not going to get into that today, but I will cover different types of loans and some things you need to know.
Loans are a type of self-help aid, which means you have to pay back your loans plus interest. If you’re completely new to borrowing, here is a great definition of loan interest from Investopedia:
Interest is the cost of borrowing money. Typically expressed as a percentage, it amounts to a fee or extra charge the borrower pays the lender for the financed sum.
Investopedia – Simple Interest
Depending on the type of loan you borrow, the interest percentage attached to that loan, and the amount of time you take paying it back, a loan for $20,000 could cost you $30,000 or more in the long run.
While I discourage taking out student loans if you do not have to, loans have their merits. For a fee (the interest), loans give you advanced access to the money you need while allowing you to pay back that money over time.
Many people can only buy a house, get an education, or buy a car with loans. I took out loans in school, which was a wise decision for me. However, that’s only the case for some. Whether or not you take out loans is a decision you must make for yourself.
The biggest advice I can give you about loans is to stay informed if you decide to borrow. Evaluate your loan amount, know your interest rates, and understand repayment expectations before committing to a loan.
Even with the ongoing student loan forgiveness negotiations, assuming your loans will be forgiven is never a good idea.
Now that we got the interest talk out of the way, let’s get back to types of loans.
Federal vs. Private Loans
There are two main types of loans: federal loans and private loans.
Federal student loans are loans the federal government offers students to pay for education-related expenses.
Private student loans are similar, except private companies fund them. They often come with higher interest rates and stricter repayment plans than federal student loans.
I generally advise my students to start with federal loans before resorting to private loans, but this is a very personal decision. Loans can be need or non-need-based.
Subsidized vs. Unsubsidized Loans
Subsidized and unsubsidized loans are types of federal student loans. The main difference between these two types of loans is how interest accrues and who qualifies for the loan.
Subsidized loans are only available to undergraduate students who demonstrate financial need. The government pays the interest on these loans while the student is in school, during the six-month grace period after graduation, and during periods of deferment. The loan balance will not increase during these periods, and the student will only be responsible for paying back the principal amount borrowed.
These loans start accruing interest six months after the student graduates.
Unsubsidized loans are available to undergraduate, graduate, and professional students, regardless of financial need. Unlike subsidized loans, interest begins accruing on unsubsidized loans as soon as the loan is disbursed. This means that the loan balance will increase over time, and the student will be responsible for paying back the principal amount borrowed and any interest that accrues while they are in school.
Work Study and Employer Tuition Assistance
Moving on from loans, let’s discuss work-study and employer tuition assistance. These are two very different things, but they both center around employment and money for school.
Federal Work Study
Federal Work-Study is a federal government-funded program that provides funding for colleges and universities to employ students. Students who qualify for the program AND get hired for a college work-study job get paid a normal hourly wage.
However, unlike a typical job, work-study students don’t have to pay income taxes on the money they earn. In addition, work-study jobs tend to better understand student schedules and homework demands than other jobs (in my experience).
Federal Work Study is need-based. Students must proactively apply for work-study jobs at their college or university. There may be additional requirements work-study students have to follow that the individual college or university sets.
There may be institutional, local, or state work-study programs, but I am unaware of any.
Work study is considered self-help aid because students have to work to access the funds (like earning a normal paycheck).
Employer Tuition Assistance
On the other hand, employer tuition assistance is an employee benefit offered by many companies in the US.
Places like Google, FedEx, Walmart, and Taco Bell offer employees and their families money to attend school. It’s part of their benefits packages!
Some employers will cover the entire cost of an employee’s education, while others only cover a percentage a semester. If you (or a family member) are currently employed, it’s worth asking if tuition assistance is a part of your benefits package.
Different companies have different eligibility requirements. Employer tuition assistance is technically gift aid, but you may have to pay it back if you don’t fulfill the employer’s requirements.
In Sum…
- Grants: typically need-based; can be federal, state, institutional, or donor-funded; you don’t have to pay them back (gift aid)
- Scholarships: typically non-need-based; can be institutional, local, organizational, business, or donor-funded; you don’t have to pay them back (gift aid)
- Loans: need-based and non-need-based (depending on the type); can be federally or privately-funded; you have to pay these back + interest (self-help aid)
- Subsidized loans: need-based and do not accrue interest while you are in school
- Unsubsidized loans: not need-based and accrue interest immediately
- Work-study: need-based; you work a job in exchange for income that is not taxed; you have to apply and work to access funds, but you don’t have to pay them back (self-help aid)
- Employer tuition assistance: non-need-based; part of a company’s employee benefits; your job (or a family member’s job) will help you pay for school; requirements depend on the company (kind of gift and self-help aid)
Paying for college can be incredibly stressful, but there are many resources to help.
I recommend visiting the Federal Student Aid website if you haven’t already. You should also fill out the Free Application for Federal Student Aid (FAFSA) on studentaid.gov (if you are eligible). If you want to explore your federal aid eligibility, you must submit a FAFSA. You may also be required to fill out a FAFSA to apply for certain scholarships.
As my Financial Aid Director used to say, do you have any questions, comments, or cries of outrage? If so, please leave them in the comments below! Understanding student financial aid can be frustrating, but I am here to help.
Keywords: Federal student aid, student financial assistance, FAFSA, scholarships, grants, unsubsidized and subsidized loans.
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