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 how much financial need they (and their family) demonstrate and their 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 and are more student-friendly than private loans.
- Federal loans: There is currently only one federal loan program: the William D. Ford Federal Direct Loan Program (Direct Loan Program). Direct Loans are managed by the U.S. Department of Education and allow undergraduate students to take out up to $12,500 annually, depending on a variety of factors. Financial need is not a prerequisite for all federal loans. For the most part, repayment doesn’t begin until you’ve completed school or dropped below half-time enrollment and interest is covered until this time as well.
- The Federal Perkins Loan Program, which provided loans to students with financial need, expired on . Perkins Loans were administered by individual institutions instead of the U.S. Department of Education. This program may be reinitiated at some point, but previous attempts moved here to extend the life of the program did not make it through Congress.
- 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 the borrower’s credit score. Unlike federal loans, many private loans are not eligible for loan forgiveness, deferments, or forbearance. Repayment often begins shortly after taking out the loans and all interest is the responsibility of the borrower.
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, but there are grants for students interested in teaching and those whose parent or guardian died as a result of military service after .
- Federal grants: There are four types of federal grants. Pell Grants and Federal Supplemental Educational Opportunity Grants are need-based. TEACH Grants and Iraq and Afghanistan Service Grants are not. Federal grants do not need to be repaid.
- Institutional grants: These grants are specific to each school and are often lumped in with scholarships. Institutional grants do not need to be repaid. Contact your prospective institutions for more information.
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 (e.g., at the school library or in a science lab) and, in return, earn money that can be applied to their educational costs. Students must demonstrate financial need to be eligible for work-study. They will be paid at least federal minimum wage, but schools adhere to higher state minimum wages as well. There is a limit to how many hours students can work each week so as not to interfere with their schoolwork. Work-study awards are given either in number of hours or dollar amounts that equate to how much a student can work in one academic year.
Even after you’ve been accepted to college, your financial aid journey doesn’t end. You can continue to apply for private grants and scholarships throughout your postsecondary education. If you want to continue to receive federal financial aid too, you must reapply each year that you are in school. You may be asked to submit updated institutional financial aid forms as well. The amount of federal (and sometimes institutional) aid you receive each year will depend on your family’s financial situation, the cost of attendance, and your level of enrollment. You must maintain at least half-time enrollment to be eligible for many forms of financial aid.