How Does Financial Aid Work?

What is Financial Aid?

Financial aid is money received from an outside source to help pay for a higher education. It can cover costs like tuition and fees, books and supplies, room and board, transportation, and some living expenses. A variety of places, such as the government, school, or private businesses offer financial aid for college, and there are different types such as grants, scholarships, work-study, and loans.

College Ave Student Loans’ survey results show how students surveyed finance their education:

  • Scholarships and grants: 64 percent
  • Parent income and savings: 50 percent
  • Student loans: 43 percent
  • Student income and savings: 37 percent
  • Private student loans: 12 percent

We surveyed students to find out how they're financing their education. from that group: 12 percent private student loans, 37 percent student income/savings, 43 percent federal student loans, 50 percent parent income/savings, 64 percent scholarships and grants - The college ave student loans survey was conducted by barnes & noble college insights SM. The national online survey had 1019 undergraduate student respondents who attended one of the 777 campuses served by barnes and noble college and was fielded in April 2019.

Some aid is designed for students who demonstrate financial need, but there are other kinds that can be based on anything from academic achievement to credit scores. And some financial aid gets paid back while some does not.

So, how does financial aid work? The best way to learn about each of your options is to break out all financial aid opportunities and go through them, step by step. Let’s dive in! We’ll explain what financial aid is, the different types of financial aid available to you, where to get it and more.

Types of Financial Aid

What is financial aid for college? Four main types of financial aid exist – grants, scholarships, work-study, and loans. Each type of financial aid holds very specific attributes and individual requirements for receiving it.


Grants are funds that typically do not need to be repaid. Grants are funds disbursed by an organization (such as the federal government, your state government or a foundation). They’re often need-based and you can find grants based on major, ethnicity and more. Check out federal grant programs for grants you can tap into, including the Pell Grant and Federal Supplemental Educational Opportunity Grants (FSEOG) – two grants for students who demonstrate financial need.


Like grants, you do not need to repay scholarships. Unlike grants, however, scholarships are not usually need-based. Instead, scholarships are typically based on merit or talents. You can get scholarships based on your grades and test scores, athletic ability, music talents and more. You can find numerous types of scholarships through national organizations, colleges and universities, local organizations – the list goes on.


Federal work-study offers part-time work for undergraduate and graduate students with financial need. You can find work on or off campus to supplement spending money or money for school.

Federal and Private Student Loans

Colleges and universities almost always include federal student loans (such as Direct Subsidized Loans and Direct Unsubsidized Loans, and Direct PLUS Loans) you may qualify for as part of your financial aid package. Federal student loans are funded by the federal government. However, you can also tap into private loans to help cover the costs of college. Private student loans are non-federal loans typically available through a bank, private lender, credit union, or state agency.

Read more about grants, scholarships and loans in “What’s the Difference Between Grants, Scholarships, and Loans?“.

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Merit vs. Need-Based Financial Aid

As mentioned above, you can find both merit aid and need-based financial aid for college – and many times, students qualify for both.

  • Need-based aid is financial aid awarded based on you and your parents’ financial situation. The best way to determine how much need-based aid you will receive is to file the Free Application for Federal Student Aid (FAFSA). A state grant, such as the Iowa Tuition Grant, is a good example of need-based aid.
  • Merit-based aid is not based on need. Colleges and private organizations award scholarships based on merit and talents. A vocal music scholarship is a good example of a merit-based scholarship.

Student loans don’t fit into one category or the other. Some student loans are need-based, such as the Federal Direct Subsidized loan, but the vast majority are not need-based. Any student attending an accredited school can qualify for Federal Direct Unsubsidized loans, regardless of his or her financial need or merit. Finally, private loans typically require you or your cosigner to have a good credit score.

How Does Financial Aid Work?

Luckily, getting financial aid is not an unattainable goal! Here’s what you can do to get it.

Fill Out the FAFSA for Federal Financial Aid

The most important thing you can do to receive federal student aid is to file the FAFSA starting on October 1 every year. File it as soon as possible because some aid is offered on a first-come, first-served basis.

A few quick facts about the FAFSA:

  • It’s free. If you come across a website that asks you to pay for the FAFSA, it’s a scam.
  • You’ll fill out information based on your and your parents’ financial information.
  • You can use the simple IRS Data Retrieval Tool (DRT) to help you pull in information for the FAFSA.
  • When you file the FAFSA, you’re asked which colleges and universities you’d like to send the FAFSA to.
  • You’ll also get a Student Aid Report (SAR), which reports everything you filed on your FAFSA. It’s important to read through that information to make sure it’s accurate.
  • Your SAR lists your family’s Expected Family Contribution (EFC), which is the amount you and your family are expected to kick in toward college costs.
  • The colleges you list get your EFC, SAR and FAFSA results and they use that compiled information to calculate your financial aid package.

Learn more about how to fill out the FAFSA.

Fill Out the CSS Profile for Institutional Aid

The CSS Profile is an online application that helps colleges and universities figure out your eligibility for non-federal financial aid. Not every college requires you to fill out the CSS Profile – though around 400 colleges and universities do require it.

A few quick facts about the CSS Profile:

  • The CSS Profile costs money. Your first application costs $25, and each school you send the CSS Profile to after that costs $16. You might be able to get a fee waiver if you’re a high-need student.
  • You can file as of October 1, 2020. It’s a good idea to file the CSS Profile and the FAFSA at the same time.
  • The FAFSA and the CSS Profile are not one and the same – they each calculate your assets differently. Filling out the CSS Profile does not take the place of the FAFSA. Rather, it is an additional application for institutional financial aid.

Learn more by reading our article: What is the CSS Profile?

Apply for Scholarships

Scholarships can serve a major purpose in the big picture of paying for college. Check out a few quick tips for looking and applying for scholarships:

  1. Define your specific talents and skill set. What are you good at? What do others say you do well? You might not even recognize it in yourself until you start asking around!
  2. Do you fit a specific profile or into a specific group? You can find many scholarships geared toward particular groups of people – women, those with disabilities, graduate students, Latinx students, students pursuing specific fields of study and more. And some are available because of where you or your parent work, or because you come from a certain background – maybe you come from a military family.
  3. Consider how you’ll show that you meet or exceed standards set by the scholarship-giver. You need to be able to communicate how you shine. That might mean you need to practice hard or work with your music teacher to leverage your musical talents. You might need to work on your writing skills to be able to communicate your other interests through scholarship essays. Whatever you need to convey, ask others for help in the process.
  4. Apply for everything you find. You might find a scholarship to cover the entire cost of your tuition or you might cash in on a few scholarships that total a few hundred dollars each. Either way, all scholarships are worth applying for because no matter what, they can help you reduce the cost of your education.
  5. Ask colleges and universities what they offer. Don’t overlook the merit-based scholarships sitting right in front of you – at colleges and universities! The amount can end up being a sizable chunk of cash. In fact, the average merit award among the 1,078 ranked colleges in an annual survey was about $11,279 in fall 2018.
  6. Ask if you can apply even if you might not quite meet the criteria. Normally, you want to fulfill every requirement when you apply for scholarships. However, many scholarships go unclaimed every year. Ask the head of a scholarship committee if you can apply anyway. They just might say yes based on the number of applications they’ve received.
  7. Apply for scholarships in plenty of time – and double-check everything. Don’t rush to submit all of your scholarship applications the night before. You want to make sure you’ve spelled everything right, included comprehensive answers and used impeccable grammar. Give yourself plenty of time for double-checking, and let a trusted adult read through it ahead of time.

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How do I find scholarships?

You might hear this a lot when you’re knee-deep in the college search: “Lots of scholarships are ‘out there.'” Unfortunately, that doesn’t give you much to go on.

You can find various scholarships by asking around at:

  • Your school counselor, college and career center office
  • Various civic organizations
  • Religious organizations
  • The company your parents work for or your own employer
  • Scholarships and universities – ask about merit-based scholarships at each institution in which you’re interested
  • Your local library
  • Federal agencies

Don’t forget to look for scholarships on:

Be careful. You want to tap into legitimate scholarship offers. You should never pay to find scholarships or other financial aid.

You can apply for scholarships at any time. In fact, you can also apply for scholarships while you’re in college! Some scholarships do not require essays, such as College Ave Student Loans’ $1,000 monthly sweepstakes1.

Financial Aid Deadlines

Every financial aid deadline is different. Some scholarships and universities have early deadlines, while others have later deadlines. Make sure to check the deadline for each type of financial aid that you apply for so that you don’t miss out on financial aid opportunities.

Another thing to consider, along with deadlines, is that there are a lot of first-come, first-served financial aid applications. In many instances, just because you turn in your application before the deadline doesn’t mean you are guaranteed the financial aid that you qualify for. It is best practice to turn in important applications as soon as possible so that you don’t lose out on every financial aid opportunity.

Research and Apply for Private Student Loans

Unlike federal student loans, you can’t get private student loans by filing the FAFSA because they aren’t government-funded. Private student loans are based on credit and income requirements. Most undergraduate students won’t qualify for a private loan by themselves, so a parent or other adult with good credit will need to cosign the private student loan and share equal responsibility. However, the biggest advantage to tapping into private student loans is that they can fill in the gaps between how much the college or university offers you, your own savings, the amount your family chips in, and any federal financial aid.

When it comes time to research and apply for a private student loans, do not assume that all private student loans are the same. Benefits can vary widely by lender. Be sure to look for lenders with flexible repayment options, competitive interest rates, and great customer reviews.

Curious about how the process works? Here are the basic steps you can use to take out private student loans.

Prequalify or apply now here and read Federal vs. Private Student Loans for more information.

Click here to download “How To Solve The Puzzle of Paying for College”

Put the Pieces Together with College Ave

It can seem overwhelming to learn about all these financial aid sources all in one place. Plus, it can take a variety of resources to pay for college – and every family is different.

However, remember that you’ve got resources at your disposal. A great place to start is to talk to your college or university’s financial aid office.

If you get to the point where grants, scholarships, and federal financial aid are expended, private student loans are a great option to help supplement your financial needs. College Ave offers a variety of different options for private student loans that can help you finish your education.

Try College Ave’s prequalification tool to see what kind of student loans and financial aid you qualify for.

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