What is financial aid?

Financial aid is designed to help students cover the costs of college, university or vocational schools. It helps with expenses like tuition, student fees, books and housing. Financial aid can come from federal and state programs, the schools themselves or private organizations. It typically comes in the form of scholarships, grants, work-study programs and federal student loans. 

What you’ll learn:

• Financial aid can help make college more affordable. The amount a student receives could range from a small amount to funds that cover most or all expenses.

• Need-based aid is provided based on a student’s demonstrated financial need. Merit-based aid is awarded to students for their achievements. Students can receive both need- and merit-based assistance.

• Some types of financial aid, like scholarships and grants, don’t have to be repaid. Other types, like federal and private loans, must be repaid.

Financial aid works by offering financial support to help students pay for college. Federal aid—including scholarships, grants and work-study—is often disbursed through the institution the student is attending. Private and nonprofit scholarships are distributed by the organization directly to the student.

Financial aid generally falls into one of two categories: need and merit.

• Need-based aid provides financial support to students based on family income and other eligibility criteria. Filling out the Free Application for Federal Student Aid (FAFSA®) form can help students determine what aid they qualify for.

• Merit-based aid is awarded to students based on skill or ability. For instance, students demonstrating academic, athletic or creative achievements can apply and receive scholarships in those areas. There may be additional requirements to qualify for and maintain the award.

There are four main types of student aid: grants, scholarships, work-study programs and student loans. Some types need to be repaid; others don’t.

A grant is considered gift money, so it doesn’t have to be repaid. Schools, private organizations, the federal government and state governments offer them. Grants can be need- or merit-based, so students typically have to meet special requirements to qualify.

Scholarships are monetary gifts that can come from nonprofits, local governments and religious groups, among others. And they generally don’t have to be repaid. Some scholarships are merit-based, and others may be based on the student’s interests or field of study or on a specific quality the student has. 

Scholarships that aren’t established by these factors may instead be based on financial need. Students may need to meet requirements to keep the award.

Work-study is a federal financial aid program that helps students find part-time jobs on campus to pay for school. To qualify, students must fill out the FAFSA form and demonstrate financial need. Students who don’t qualify for the program can still apply for jobs on or off campus.

There are two general types of student loans that students can apply for—federal and private. Recipients begin with a starting balance and agree to pay it back with interest over time. 

• Federal student loans: These are issued by the federal government via the William D. Ford Federal Direct Loan Program, and the lender is the U.S. Department of Education. The Direct Loan Program can include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans.

• Private student loans: These are issued through institutions like banks, credit unions, schools and even state agencies. Private student loans can be taken out by students, but they often require a co-signer, such as a parent.

To apply for federal financial aid like grants, scholarships, work-study and loans, you can fill out the FAFSA form. For private aid, some institutions use the College Scholarship Service (CSS) Profile to determine eligibility.

If you want to receive federal financial aid, start by filling out the FAFSA form. The federal government uses the form to determine how much you can afford to pay toward college. And colleges use that information to determine how much financial aid you’re eligible for.

You can submit FAFSA forms starting October 1, and because financial aid is provided on a first-come, first-served basis, it’s a good idea to apply as soon as possible. You’ll need to fill out a new FAFSA form each year you plan to attend college.

Learn more about how FAFSA works.

The CSS Profile is a form that some colleges and universities use to determine whether you qualify for nonfederal, school-based financial aid. The form is administered by the College Board, a nonprofit organization that helps prepare students for college. You can submit CSS applications starting October 1. But each school has a different deadline.

There are other ways to find information about student financial aid. You can ask your high school counselor and college financial aid office for leads. You can also look at online scholarship databases and review potential deadlines. Some grant and scholarship applications are due while the student is still in high school, while others are reserved for students already enrolled in college.

Financial aid can help you pay for school, and you may be eligible for a combination of scholarships, grants or loans depending on your situation.

Having a student credit card while you’re in college can help you pay for some of your expenses while you’re in school. When used responsibly by doing things like paying your bill on time each month, it can also help you establish credit. And that can help down the road when you apply for a car loan, mortgage or apartment. 

If you’re figuring out credit for the first time, check out these tips for using a card responsibly and creating healthy financial habits.