FINANCIAL AID
What Is Financial Aid, and How Does It Work?
The cost of college is high—but that doesn’t mean every student will pay the sticker price.
In fact, there are numerous resources to help students pay for postsecondary education. The Office of Federal Student Aid (FSA) is the largest provider of student financial aid in the U.S. It gives out more than $120 billion in the form of loans, work-study programs, and grants to more than 9.9 million students each year. Read on to learn more.
What is financial aid?
Financial aid is money that students receive from local, state, and federal government bodies as well as institutions; this money is intended to help them pay for college or career education.
On one side of the aid spectrum is gift aid—money that does not need to be paid back, such as grants. On the other side are loans, which do need to be paid back. In the middle is self-help aid, such as work-study, for which students assume responsibilities during the course of their postsecondary education in order to help finance that education.
How does financial aid work?
For starters, students should review the financial aid requirements for each school to which they apply. They should start by completing the Free Application for Federal Student Aid (FAFSA®). Colleges and career schools use the FAFSA to determine how much financial aid a student is eligible to receive. Read our FAFSA article to find out about key dates and deadlines. The bottom line: more students qualify than apply, so it behooves students to submit this (relatively short) form.
Once students submit their FAFSA forms, the FSA calculates their Student Aid Index (SAI). SAI numbers range from –1,500 to 999,999. The lower a student's number is, the more likely the student is to receive financial aid.
It's important to note that a student's SAI number is not a final financial aid offer, nor is it a dollar amount that students should expect to receive. Rather, it is a number that allows the government to work with schools to determine how much financial aid students are eligible to receive.
A number of higher education institutions additionally require students to submit the CSS Profile form to be considered for nonfederal funding. This form is more extensive—and again, completing it (when it is required) can help students ensure they maximize the financial aid they receive. Read our CSS Profile article for more information.
The cost of attendance is also considered when determining each student’s financial aid package. This includes tuition, fees, room and board, personal expense estimates, school supplies, and travel estimates.
Financial aid offers reflect the school's calculation of need: i.e., cost of attendance minus SAI equals student need. How they meet that need can be distributed among various forms of aid, from grants and scholarships to work-study programs to loans.
What are the types of financial aid?
As noted above, grants and scholarships—gift aid—are a form of financial assistance that recipients don’t have to repay unless otherwise specified.
The federal government offers several types of such aid. These include Pell Grants, Federal Supplemental Educational Opportunity Grants, and Teacher Education Assistance for College and Higher Education (“TEACH”) Grants. The first two are geared toward undergraduates with financial need, and the last focuses on both undergraduates and graduate students who plan to become teachers.
Each year, many students do not take the steps necessary to maximize their aid—to the tune of $3.6 billion in unclaimed Pell Grants in 2022. Students will not receive this aid if they do not apply for it. Our advice: apply, apply, apply!
Beyond gift aid, work-study programs—self-help aid—allow students to work part-time jobs so that they can earn money to support their education. Work-study award amounts are typically based on when students apply, how much financial assistance they need, and how much funding their school has.
Lastly, there are loans, which are given to students with the expectation that the recipient will pay back the full amount of the loan plus interest. Loans can be direct subsidized loans (for undergraduate students, with interest paid by the U.S. Department of Education while the student is still attending school); direct unsubsidized loans (for undergraduate and graduate students, with recipients paying back all accumulated interest; and direct PLUS loans (for graduate and professional students as well as parents of dependent graduates, again with recipients paying back all the accumulated interest).
What if a student does not get enough aid to attend school?
While the cost of attendance minus SAI is supposed to—and often does—reflect what a student and/or student’s family can pay, in some cases it may fall short.
In such instances, it is helpful if students can compare aid offers from multiple institutions, taking particular note of the ratio of gift aid to loans, and then choose their best-fit option.
Additionally, students and/or families can (respectfully and tactfully) reach out to a school’s financial aid office to appeal their award.
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