College financial aid basics

Get the information you need on various scholarship, grant and loan options available to help cover the costs of college.

Financial aid can be a key part of planning and paying for higher education. Even for families that may not qualify for need-based aid, there are financial aid opportunities that can help defray the high costs of education.

As you begin exploring your financing possibilities, we will help you evaluate various types of financial aid options available to create a college payment strategy that includes your financial aid package.

In this article:

What is and isn’t considered financial aid, and how does it work?

Financial aid is any college funding that doesn't come from family, personal savings or earnings. It includes grants, scholarships, work-study jobs and federal or private loans. A variety of sources offer aid, including federal and state agencies, colleges, high schools, community organizations, foundations, corporations and more.

There are two main categories of financial aid:

  • Need-based aid is awarded based on an assessment of a student’s ability to pay.
  • Merit-based aid is awarded for special talent or a demonstrated ability, such as in academics, athletics or music. 

Another aspect of financial aid to consider is the repayment terms. Most scholarships and grants do not have to be repaid. Most loans do.

How financial aid is determined

The first step in obtaining most financial aid is to fill out the Free Application for Federal Student Aid (FAFSA). In some cases, you’ll also have to submit the CSS Profile.

  • The FAFSA is the universal application required by every higher education institution for students to obtain federal aid, including loans, grants and work-study jobs. It collects information on a family’s financial situation to assess need and determine aid from the government and many colleges and universities. Parental and student income is the primary determinant of financial aid under the FAFSA. However, certain assets are also considered, including bank and brokerage accounts and college savings plans like Coverdell savings accounts or 529 plans.
  • The College Scholarship Service (CSS) Profile is an additional application used by about 300 colleges and universities, including many of the most selective schools in the country, to obtain financial aid from sources other than the federal government.

Advice spotlight

Don’t skip the FAFSA

Students should submit a FAFSA every year even if their family doesn’t think they will qualify for need-based financial aid. The FAFSA provides key inputs for a financial aid package and is often used to obtain non-need-based federal loans and merit-based aid.

Types of financial aid for college

There are three main types of financial aid: grants and scholarships, work-study programs and loans.

1. Grants and scholarships

Grants and scholarships don’t require repayment, making them a desirable part of any financial aid package.


Colleges and universities, private foundations and state governments all offer grants, but the federal government is the primary source. Most federal grants are based on financial need or other special circumstances.

Notable federal grants include:

  • Pell Grants: Need-based grants based on expected family contribution.
  • Federal Supplemental Educational Opportunity grants: Awarded to students with exceptional financial needs.
  • Iraq and Afghanistan Service grants: Reserved for children of U.S. Armed Forces members who died as a result of serving in Afghanistan or Iraq after 9/11.
  • Teacher Education Assistance for College and Higher Education grants: For students pursuing teaching careers in high-need fields and underserved schools.


Another common type of college financial aid is scholarships. Scholarships are generally merit-based, which are awarded to students based on achievements, often in academics, the arts or athletics. The application process for scholarships differs from school to school, but students may be required to fill out the FAFSA as part of their scholarship application. 

Some scholarships support specific groups, and numerous scholarship-finder websites can help you find opportunities based on financial need, community service, heritage, gender, sexual orientation and life experience. Some also benefit students who have unique skills and hobbies.

2. Work-study programs

The Federal Work-Study Program allows students to earn money through specific part-time jobs offered at certain colleges and universities. Based on financial need, work-study hours are awarded as part of a student’s overall financial aid package.

In addition to the convenience of having a job when they arrive on campus, students with a work-study job will also benefit from a tax standpoint. Work-study income is exempt from Social Security and Medicare taxes if the hours are part-time and students take at least six credits.

3. Student loans

Student loans are available to help cover expenses while in school. Both the federal government and private entities, such as banks or credit unions, offer student loans. Here’s an overview:

Federal loans

Private loans

Institutional loans

Offered by the U.S. government to undergraduate and graduate students, as well as special loans for parents of students.


Offered by a bank, credit union or other lender.


Terms are based on the borrower’s (or a co-signer’s) credit history.


Have higher borrowing limits than federal debt limits and often help pay for college expenses not covered by federal loans.

Offered by colleges and universities directly to students and their families.


Often aimed at filling the gap between the federal aid that applicants are eligible to receive and the cost of attendance.

Tuition payment plans

Many schools offer tuition payment plans that allow you to pay tuition over several months, often up to a year. There may be a relatively low finance charge, but there’s no interest incurred with such plans. Most plans restrict covering costs paid directly to the college or university, such as tuition and fees or on-campus housing and meal plans.

Aid for military veterans and service members

Military veterans, active-duty personnel and future military personnel are eligible for numerous programs to help pay for higher education. Some of the more popular programs include:

  • Reserve Officer Training Corps (ROTC) Scholarships
  • Department of Veterans Affairs Education Benefits (GI Bill)
  • Tuition assistance programs
  • Limited interest rates, no accrual of interest and deferment of student loans
  • Scholarships from organizations such as the American Legion, AMVETS, Paralyzed Veterans of America, Veterans of Foreign Wars

Questions to discuss with us

  • Can you help me evaluate my financial aid packages and options? How may these decisions impact my overall financial plan?
  • Can you help me explore strategies to structure my assets in advance of completing the FAFSA?
  • Can you advise me on the amount and type of student loans my family is considering?

How we will help

Whether your child is going to college next year or a decade from now, we will work with you to review your financial aid options and create an approach for college expenses that fits with your overall financial strategy.