Types of Financial Aid

In this topic, we cover:

  • How education loans work.
  • How grants and scholarships are awarded.
  • Why work-study programs can play an important role for those with financial need.
  • The advantages of service programs.


There are essentially three ways to get money for college: it can be loaned to you, it can be given to you as a grant or scholarship, or you can earn it through work-study or service programs.

Education Loans

Education loans make up the vast majority of all aid dollars. Loans are borrowed from the federal government or from private lenders such as banks and credit unions.

Federal loans should be your first choice when choosing education loans. They may offer the lowest interest rates, they're easy to qualify for, and they offer the most flexible repayment plans. Federal loans are either "subsidized" or "unsubsidized." Subsidized loans are awarded based on financial need, and if you qualify, interest is not charged before graduation or leaving school. Unsubsidized loans are not need-based and interest is charged from the time you receive the money until it is paid in full. If you qualify, subsidized loans could save you thousands of dollars in interest over the life of the loan.

Private loans are becoming increasingly important since government loans are capped at a specific dollar amount for each year of school – a cap that may not cover all school-related expenses. Private loans are a good option for filling the gap between the maximum government loans and the cost of attending school. But private loans do have less flexible repayment options than federal loans, so consider private loans only after maxing out federal loans.

Repayment of student loans typically begins within six months of graduation or after dropping below half time enrollment. Remember, you are responsible for repaying education loans whether or not you graduate.

Grants and Scholarships

Grants and scholarships are financial aid awards that don't need to be paid back. These awards may be based on financial need, or academic and extracurricular merit.

Many schools will automatically consider you for school-based grants and scholarships when you apply for aid. In addition, the federal Pell and Federal Supplemental Educational Opportunity Grant programs are based exclusively on your FAFSA form, which every person applying for federal aid must complete.

For other awards, students must seek out and apply for each and every one. Internet searches generally offer the best ways to find out about awards, but be careful about revealing your personal information. You should never have to enter your Social Security Number or pay for a scholarship search. A high school guidance counselor may also be aware of significant local awards that may not be in these other sources, so be sure to ask.

If you win a scholarship that could continue from year to year, keep in mind that you may need to earn a certain grade point average or fulfill other requirements in order to have it renewed. If you're basing a college choice on a renewable grant, you may want to ask what percentage of grant recipients keep the award year-to-year. And when receiving any grant or scholarship, you'll need to understand what happens in an unusual situation, like if you need to leave school mid-year.

Work-Study Programs

Work-Study Programs provide jobs for students with demonstrated financial need. These jobs are often on-campus, and range from career-related positions, such as research assistant for a professor, to cashier positions at a student store. Off-campus jobs are sometimes awarded as well.

The pay for work-study jobs is at least minimum wage, and earnings are limited to the amount established in each student's financial aid award package. Work-study is paid on an hourly basis. Unlike loans, work-study money does not need to be repaid.

Work-study programs are administered by each school's financial aid office. If you qualify for need-based aid, work-study may be an option you should explore.

Service Programs

Service programs provide aid to students based on the type of work they do before or after college. Examples include military service, AmeriCorps, the Peace Corps, and Teach for America. Benefits range from a few thousand dollars working for AmeriCorps to a practically free college education for military officer training. Service programs are typically NOT need-based, and spots in some programs can be very competitive – so explore these options early.

Whether or not these programs make economic sense depends on a variety of factors, including the monetary benefit, the time commitment to the program, and what other options would be available for earning money after graduation. But service programs also provide an experience that may be unavailable in other jobs – including leadership development and community service.

Library Financial Aid Introduction