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Financial Aid

by Student Loan Daddy

Financial aid, also sometimes referred to as student aid, is financial assistance available to students to help pay for college, graduate school, and other post-secondary studies. Financial aid can be either need-based or non-need-based.

  • Need-based financial aid is awarded to students who demonstrate financial need, as measured by the income and financial thresholds established by whatever agency or entity is awarding the financial aid. Definitions of financial need can vary from agency to agency and may change from year to year based on certain economic indicators, such as the local or national poverty threshold, the federal cost-of-living adjustment, or the national inflation rate.
  • Non-need-based financial aid is available to students who request help with paying for college or graduate school, even if they don’t demonstrate financial need. Although non-need-based financial aid isn’t limited to students within lower income brackets, you’ll still generally need to show that you have outstanding college expenses or other school costs that you need to meet.

In general, financial aid, whether need-based or non-need-based, will not be awarded in excess of your cost of attendance, as determined by your school.


Federal Financial Aid

Federal financial aid, provided by the U.S. government through the Department of Education, is the largest and best-known source of money for college. The federal financial aid program provides over $100 billion in financial aid to nearly 14 million college students, graduate students, and their families every year.

School & State Financial Aid

Financial aid may also be provided by state agencies and by colleges and universities themselves.

Like federal financial aid, state financial aid and institutional financial aid (student aid awarded by your school or school’s financial aid office) may take the form of scholarships, grants, or student loans.


Financial aid can take one of four basic forms:

  • Scholarships and grants
  • Work-study
  • Student loans
  • Parent loans

Scholarships & Grants

Scholarships and grants are financial aid awards that don’t need to be repaid. In essence, scholarships and grants provide you with free money to help pay for college or graduate school.

Any particular scholarship or grant award may be need-based, merit-based, or a combination of both.

The federal financial aid program provides a number of grants for low-income students and students who demonstrate financial need.


Work-study, a form of need-based federal financial aid available through the Federal Work-Study program, provides part-time jobs for undergraduate and graduate students, allowing you to earn money to help pay for college. The program encourages community service work and work related to your major or course of study.

A work-study job may involve assisting a professor, working at the university library, or doing administrative or research work on campus. You may also be able to get a work-study position off-campus at a nonprofit organization, public agency, or company that has an agreement with your school to provide work-study opportunities.

As an undergraduate in the Work-Study program, you’ll be paid by the hour, and your work-study hourly pay rate must be at least equal to the current federal minimum wage.

Student Loans

Student loans provide you with money for college or graduate school that, unlike scholarships and grants, will need to be repaid.

Although most student loan programs allow you to defer your repayment until after you’ve graduated or left school, that doesn’t mean the student loan money is free. While your payments are postponed, you’ll still be accruing interest on all your non-need-based student loans. (Interest charges on need-based federal student loans — referred to as subsidized student loans — are covered by the government while you’re in school.)

Student loans, like a credit card or any consumer loan, assess interest charges, so the amount you repay will almost always be more than the amount of money you were initially awarded.

Like scholarships and grants, student loans can be either need-based or non-need-based.

An additional consideration is that student loans may also be either credit-based or non-credit based.

  • Credit-based student loans require you to undergo a credit check and meet certain credit and/or income criteria. Federal Grad PLUS graduate student loans, for instance, have modest credit requirements that you’ll need to meet in order to qualify.The most common type of credit-based student loans are the private student loans offered by banks and private lenders as supplementary financial aid to your federal financial aid package. With private student loans, the interest rate you’re charged and the fees you pay are typically pegged to your credit rating: the better your credit, the lower your interest rate and fees.
  • Non-credit-based student loans are awarded without any regard for your credit history or credit rating. You won’t have to undergo a credit check or obtain a co-signer.Examples of non-credit-based student loans are federal Stafford student loans and federal Perkins student loans. Many state student loans awarded by state financial aid agencies may also be non-credit-based.

A note about student loan defaults and delinquencies: It’s important to keep in mind that, although you can’t be turned down for a non-credit-based student loan on the basis of a generally weak, unestablished, or spotty credit history — such as missed car payments or a large amount of credit card debt — late payments or defaults on federal student loans specifically can affect your ability to get any federal college loans or non-federal private student loans in the future.

Parent Loans

Parent loans are awarded to parents of dependent students who need additional financial aid to help pay for college. Whereas student loans are made in the student’s name, with the student as the primary borrower, parent loans are made in the parents’ name, and the parents will bear all responsibility for repaying the loan.

Parent loans are typically non-need-based, credit-based college loans.

Federal PLUS parent loans, available through the federal financial aid program, have modest credit requirements. Some lenders may also offer private parent loans.


Applying For Federal Financial Aid

In order to be considered for any federal financial aid, each year that you’re in school, you’ll need to submit the Free Application for Federal Student Aid, known more commonly as the FAFSA.

Unless you complete the FAFSA, you won’t be eligible for any federal grants, federal work-study, or federal student loans. (Only federal PLUS parent loans may be awarded without a FAFSA. However, although the Department of Education doesn’t require a FAFSA from PLUS loan applicants, your school might. Make sure to check with your financial aid office for your school’s specific financial aid guidelines.)

Applying For School & State Financial Aid

Many state financial aid agencies and university financial aid offices also use the FAFSA to determine eligibility for school or state financial aid.

Make sure, however, to research the exact financial aid forms and paperwork required by your own state and school. Some state financial aid agencies have their own financial aid form that must be submitted either in addition to or in lieu of the FAFSA. Many colleges and universities also have their own financial aid forms, which are designed to collect additional financial information not accounted for in the FAFSA.

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