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 survey results show how students surveyed finance their education

  • Scholarships and grants: 51 percent
  • Parent income and savings: 41 percent
  • Federal Student loans: 40 percent
  • Student income and savings: 37 percent
  • Private student loans: 16 percent

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.
  • 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 FAFSA Submission Summary, which reports everything you filed on your FAFSA. It’s important to read through that information to make sure it’s accurate.
  • Your FAFSA Submission Summary lists your family’s Student Aid Index (SAI), which is the eligibility index number colleges use to determine your financial aid you’ll receive.
  • The colleges you list get your FAFSA and SAI 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 each year. 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 are crucial for reducing college costs. Here’s how to effectively search and apply:

  • Identify Your Strengths: Recognize your talents and skills, even those you might not be aware of, by asking others for their observations.
  • Target Specific Scholarships: Look for scholarships tailored to specific demographics, such as women, students with disabilities, certain ethnic groups, or those pursuing specific academic fields. Also, explore opportunities linked to your or your parents’ employment or background.
  • Showcase Your Qualifications: Demonstrate how you meet or exceed the scholarship criteria. This may require enhancing certain skills, like writing or music, through practice and seeking help from others.
  • Apply Broadly: Apply for all available scholarships, whether they cover all tuition costs or offer smaller amounts. Every scholarship can help lessen educational expenses.
  • Check College Offers: Don’t ignore scholarships offered by colleges and universities themselves, which can be substantial.
  • Inquire About Flexibility: If you don’t fully meet the scholarship criteria, ask if you can apply anyway, as some funds go unclaimed each year.
  • Prepare and Review: Avoid last-minute applications. Ensure your application is error-free and well-crafted by allowing time for thorough reviews and corrections.

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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 8 types of scholarships for students here.

You can also 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 $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 loan, 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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