Financial aid is the key that makes higher education possible for millions of students every year. In fact, if you’re heading to college, there’s a good chance you’ll receive some form of aid – nearly 90% of students do. But not all financial aid is created equal. Understanding the different types available (grants, loans, and work-study), and how they work can help you avoid costly mistakes and make college far more affordable.
Financial aid refers to money provided by federal, state, institutional, or private sources to help students cover college costs. It’s generally categorized into three main types: grants, loans, and work-study. These funds can come from your college, the government, or outside organizations and can cover tuition, housing, textbooks, and more.
There are many different forms of financial aid, but most students rely on a mix of free money (like grants), earned money (like work-study), and borrowed money (like loans). Some schools also offer institutional scholarships based on merit or financial need. To get the most aid possible, it’s essential to understand how each type works and what you're eligible for. Learn how to maximize your aid with the FAFSA.
Grants are a type of financial aid that you don’t have to pay back, making them one of the best ways to fund your education. They’re usually awarded based on financial need and can come from federal or state governments, colleges, or private organizations. For example, the Federal Pell Grant is available to students with significant financial need and can cover a sizable portion of tuition.
Other types of grants include the Federal Supplemental Educational Opportunity Grant (FSEOG), which provides additional funding to students with exceptional need, and state grants, which vary by state. Many colleges also award institutional grants based on your FAFSA or CSS Profile.
Student loans can help you fill the gap between what you can pay and the full cost of college. The most common types of FAFSA loans include Direct Subsidized Loans (where the government pays the interest while you’re in school) and Direct Unsubsidized Loans (where interest accrues immediately). Parents and graduate students may also consider Direct PLUS Loans, while Direct Consolidation Loans combine multiple federal loans into one.
Private loans are another option, though they typically come with higher interest rates and less flexibility. These are offered by banks, credit unions, or online lenders and usually require a credit check. If you need to borrow, federal loans should always be your first choice. Check out smart ways to save for college.
The Federal Work-Study Program is a financial aid option that allows students to earn money through part-time jobs while attending college. These jobs are often on campus and can help cover everyday expenses like books, meals, or personal costs. Work-study is considered a type of aid because your eligibility is based on financial need, and the wages won’t reduce your overall aid package. Unlike regular part-time jobs, work-study positions are funded by the government, making you a more attractive hire to employers on campus. However, not all schools participate in the program, so check with your college’s financial aid office. Learn how to make the most of on-campus work opportunities.
To choose the right financial aid for you, it’s important to weigh the pros and cons of each type. Grants and work-study are generally more favorable than loans since they don’t require repayment. Loans can be helpful, but they come with long-term financial consequences and should be approached with caution. Your goal should be to prioritize free and earned aid over borrowed aid. To do that, look carefully at each financial aid offer you receive and calculate the “net price”—the actual cost after grants and scholarships are subtracted. Financial literacy can help you build a better college budget.
To access most financial aid, you’ll need to complete the Free Application for Federal Student Aid (FAFSA). This form collects information about your family’s finances and determines your eligibility for grants, loans, and work-study. Some private colleges may also require the CSS Profile to offer institutional aid. You should also explore scholarships and state aid programs, which may have additional applications or deadlines. Stay organized by tracking your forms and setting reminders.
