What is Financial Aid? – Student Guide to Financial Aid

So, the big question is – “what is financial aid?” Financial aid can be segregated into 2 broad categories to understand it better. These two categories are (a) those based on need and (b) those that are not based on need but based on merit. Put another way, need-based financial aid is provided based on the assessment of the individual’s ability to pay for education made by the awarding agency. Merit-based aid is given to students who have exhibited exceptional aptitude or competence in a variety of areas such as academics, athletics, theater, music, or other activities.

The repayment of financial aid does not hinge on whether such aid is merit-based or need-based. While a majority of loans received as financial aid will have to be paid back, almost all scholarships and grants do not require repayment.

Financial Aid can be classified into the following types:

So, how does financial aid work? To qualify for federal financial aid, a student must first submit an application, which includes answering a series of questions that are used to establish their financial ability to pay for college. Then, depending on that application, options for aid are offered to the student, and the student can either accept or reject the offer/s. A student may be required to submit additional applications to be evaluated for eligibility for scholarships or private financial aid.

There are two crucial points students should make a note of (a) The amount of financial aid available to a student each year is primarily determined by federal, state, and institutional criteria, and (b) The type of aid provided decides whether or not it will be required to be returned/repaid.

How to apply for financial aid? The first step is to complete the Free Application for Federal Student Aid (often known as the FAFSA) form, which is available online. Many state agencies and colleges utilize this application to assess whether or not to award financial aid to students.

Free Application for Federal Student Aid (FAFSA)

The Free Application for Federal Student Aid (FAFSA) is available on the website of the United States Department of Education. Starting as early as October 1, families can fill out the form in preparation for the following academic year. For those planning to attend college in the fall, the FAFSA application deadline is June 30. However, that deadline applies exclusively to government financial assistance. Many institutions and universities that rely on the FAFSA to determine aid impose early deadlines for submitting applications.

College Scholarship Service Profile (CSS Profile)

Another way to apply for financial aid is the College Scholarship Service Profile or CSS Profile. This is a supplemental form some private colleges use to determine how to distribute their own monies to deserving students. The College Board, the institution that administers and maintains the CSS application, has a list of schools that require the CSS Profile, which may be accessed through their website. Compared to the FAFSA, this form is more thorough and can take a more extended amount of time to complete. It also dives deeper into a family’s finances for a complete and comprehensive report. For example, the CSS Profile takes into consideration assets that are not included on the FAFSA and usually factors the value of a family’s house, small business, or a 529 college savings plan sponsored by grandparents, etc.

There are two types of financial aid – merit-based financial aid and need-based financial aid.

Merit-based Aid

Student aid offered based on merit might be given by an institution, college, or private organization to a student who has demonstrated a particular talent, athletic or academic capability.

Need-based Aid

Student aid offered based on financial need might be given by an institution, college, or private organization to a student who has demonstrated an inability to afford or pay for college through the FAFSA.

The two types of financial aid can be further broken down into:

1. Federal Direct Loans

Federal Direct Loans are low-interest loans that are funded by the government, meaning students do not need to worry about repaying their debt until they graduate or if they become unemployed. Students pursuing an undergraduate, graduate, or professional degree who are enrolled at least half-time (6–8 credits each semester) in school or a career training program can apply to Federal Direct Loans.

There are four types of Federal Direct Loans – Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Plus Loans, and Direct Consolidation Loans. Here is a quick look at Direct Subsidized Loans and Direct Unsubsidized Loans:

Direct PLUS Loans are meant for graduate or professional students and parents of dependent undergraduate students. Although these loans are not based on need, a credit check is usually required.

Direct Consolidation Loans allows a beneficiary to combine all their eligible federal student loans into one single loan.

2. Federal Grants

Federal Grants are financial aid awards that do not need to be repaid. There are two types of these grants: the Pell Grant and the Federal Supplemental Educational Opportunity Grant (FSEOG) Grant. The Pell Grant is awarded to undergraduate students who demonstrate exceptional financial need. The SEOG Grant is awarded to undergraduate and graduate students with exceptional financial needs.

3. Federal Work-Study

Federal Work-Study gives part-time work to financially needy undergraduate and graduate students, allowing them to earn money to help pay for their education. Community service and jobs linked to the student’s area of study are encouraged as part of the program.

Here is a basic rundown of Federal Work-Study programs:

4. Private Student Loans

Private Student Loans are offered by banks and financial institutions and are designed for students who do not qualify for federal aid or need additional funds. With private loans, the interest rate varies depending on the price of money in the financial market and usually tend to be more expensive than federal student loans.

5. Scholarships

Scholarships are monetary awards that do not need to be repaid unless the recipient fails to meet the terms of the award. Scholarships can come from a variety of sources, including individuals, community groups, the federal and state governments, colleges, and universities, as well as charity and for-profit organizations.

Scholarships are often merit-based, although there are also need-based or merit and need-based scholarships available. Some scholarships cater exclusively to women, minorities, and students from military families or a particular demographic. Students can check if they qualify for any scholarships through their guidance counselor at school, the financial aid office at college, or other credible sources.

6. Grants

Except when the recipient fails to live up to the terms of the grant, such as by leaving school, in the same way scholarships do not need to be repaid, grants too do not require repayment and are considered “free” money. Grants can come from a variety of sources, including the federal and state governments, educational institutions, and businesses and nonprofits. There are merit-based grants as well as need-based grants available.

Note: it is important to note that scholarships and grants are usually institutional aid or aid from other private institutions that widely varies one from another because each institution or organization has its own regulations and criteria for determining how much financial aid to grant and under what criteria.

Just as the federal government hands out loans to students, universities too offer financial aid, usually in the form of scholarships and grants. How do colleges award financial aid to students? While financial aid that comes through with the FAFSA or CSS Profile is sometimes routed through the university to reach the applicant, independent or institutional scholarships and grants can be applied for directly at the university. A third option popular among graduate students is the graduate assistantship that allows students to work part-time with/for professors and get paid in return.

University or Private Scholarships

Universities, businesses, nonprofit organizations, ethnic groups, and individuals award scholarships to deserving students. Scholarships are usually awarded on the student’s academic, athletic, or artistic achievement, but the two most common awards are athletic scholarships and academic scholarships. However, scholarships can also be awarded based on financial need or based on a combination of merit and financial need.

Academic Scholarships – are awarded to students who demonstrate exceptional academic excellence. These scholarships are typically merit-based awards but sometimes need-based as well.

Athletic Scholarships – are awarded to student-athletes who demonstrate exceptional talent in their sport.

University or Private Grants

Grants are also often awarded by universities, businesses, nonprofit organizations, ethnic groups, and individuals based on an individual’s financial status and need. Because they do not require repayment, grants are among the most sought-after forms of financial assistance for college students. Besides tuition, grants can help students pay for education-related expenses like transportation, accommodation, books, and supplies.

Graduate Assistantships

As a Graduate Teaching Assistant (GTA), students are often expected to assist in the classroom while receiving financial aid. To be a teaching assistant, one must put in the required number of hours each week and receive either a monthly stipend or an hourly rate. Graduate teaching assistantships are full-time positions that last for a set period, usually a quarter, trimester, or semester. Like the graduate teaching assistantship is the graduate research assistantship – the only difference being that the graduate research assistant will have more lab and research-oriented work instead of classroom and teaching work.

When to apply for financial aid? When it comes to financial aid, deadlines are important. All forms of financial aid, including the FAFSA, CSS Profile, scholarships, grants, etc., have deadlines within which applications for aid must be made each year. However, the most important date to remember is the open date, which is the first day on which you can apply for financial aid each year.

The FAFSA and CSS Profile become available on October 1, the first day of the calendar year preceding the academic year for which one is applying for financial aid. For example, the application deadline for the academic year 2023-24 is October 1, 2023.

Students can apply for federal financial aid for the academic year 2023-24 using the Free Application for Federal Student Aid (FAFSA) at any time between October 1, 2023, and June 30, 2023. Nonetheless, it is essential to note that most state and college/university aid applications are due well before June 30, including those submitted through the FAFSA and the CSS Profile. The sooner one applies after the open date of October 1st, the better, even though some schools put their deadlines between January and March of the following year. Few schools adhere to the FAFSA’s June 30th deadline. The FAFSA deadlines for each state are listed here.