Zina Kumok Image Written By: Zina Kumok | Edited By: Kevin Ladd | Updated: January 2, 2025

Financial Aid

Once you’ve decided where you’re applying to college, you can work on the next piece of the puzzle: financial aid.

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If you’re new to financial aid, it can feel like navigating a maze without a clear route. But once you understand how financial aid works, you’ll be able to maximize your aid. Read below to learn about the various types of financial aid, how to qualify and where to apply.

What Is Financial Aid?

Financial aid is the term used to describe how students - and families - pay for college. There are several types of financial aid including:

Some types of financial aid have specific need-based components, while others care more about your academic achievements.

Types of Financial Aid

Scholarships

Scholarships are the best kind of financial aid to get because they don’t have to be repaid at any point. Also, scholarships are more plentiful than grants, which can be harder to qualify for if you don’t meet need-based criteria.

Scholarships can come from:

Scholarship amounts can range from as little as $100 to as much as a full-ride for four years. Students can find scholarships for general academic success, like the Coca-Cola Scholars Foundation.

Other scholarships are more niche, like the Blacks at Microsoft Scholarship, which is awarded to African-American students interested in STEM.

Grants

Like scholarships, grants do not have to be paid back. However, grants often require that students show demonstrated financial need. Grants may still have some basic academic requirements. However, these are often less stringent than scholarships.

The most common types of grants are federal grants and state-based grants. Federal grants are funded by the federal government, while state grants are funded by each individual state. Below is a more comprehensive list of the types of grants that are available:

Here are the most common federal grants:

States offer grants, usually only to local students. Like some federal grants, state grants may be given on a first-come, first-serve basis. Also, some states are more generous than others.

Work-Study

Work-study is a type of financial aid that pairs students with part-time jobs, either on campus or with a supporting organization. Students may work at a school’s computer lab, library or dorm.

In exchange, students will receive a paycheck that they can use for tuition, fees, living expenses and more. Work-study is hard to qualify for because students must have demonstrated financial need.

Also, schools have a limited number of work-study spots. Even if you’re theoretically eligible for work-study, you need to apply sooner rather than later to be considered.

Student Loans

Student loans are the least desirable type of financial aid because they must be paid back after you leave school.

There are federal and private loans, with federal loans more preferable than private loans.

Here are the subtypes of federal student loans:

Private student loans are harder to qualify for than federal loans because lenders will run both a credit check and income verification to ensure the student (or parent) can pay back their loans. Typically, the terms for private student loans will not be as favorable as federal loans and they cannot be forgiven.

Borrowers with federal loans have access to the following perks:

Federal loans usually have lower interest rates than private student loans, but this depends on a student's credit score, income and if they have a cosigner. In some cases, private loans may offer lower rates than federal student loans.

Income-share agreement

An income-share agreement (ISA) is a little-known type of financial aid. Here’s how it works. Instead of taking out a loan for a certain amount, a school or third-party lender will cover some or all of your tuition.

Once you graduate, your monthly payment will be equal to a percentage of your income. You will make those payments for a certain number of years. Because ISAs are based on your income and not the amount you borrowed, you may wind up paying much more than if you had taken out a traditional student loan. And because ISAs are not loan agreements, you can’t refinance them later on.

How to qualify for financial aid

You’ll have to complete the Free Application for Federal Financial Aid (FAFSA) to qualify for many types of financial aid, including federal student loans, federal and state grants, work-study and even some scholarships.

Some schools also rely on the CSS Profile in lieu of or in addition to the FAFSA. Unlike the FAFSA, the CSS Profile costs money to fill out. However, you can complete it for free if your household’s adjusted gross income is $100,000 or less.

Both the FAFSA and the CSS Profile must be filled out every year that you want to qualify for financial aid. If you don’t fill out the forms, then you may lose funding.

A student's citizenship is also a factor in determining financial aid. Students with DACA status will have a harder time qualifying for financial aid, especially federal aid. However, they may still be eligible for scholarships and some state grants, depending on the state.

Also, financial aid is often dependent on another factor: making Satisfactory Academic Progress (SAP). SAP means having at least a 2.0 GPA for undergraduate students and a 3.0 GPA for graduate students. It also means making progress toward a degree. If you fail to achieve SAP, then you may lose access to financial aid until your grades improve.

When you apply to college, you’ll receive an award letter detailing your financial aid. This letter will outline what financial aid you're eligible for and how much in costs you’ll be responsible for.

How much you receive every year in financial aid can change drastically depending on your family’s income, your major, if you’re a full-time student and other factors. Most types of financial aid are only given on an annual basis, but some, like scholarships, can be renewed for several years.