How college financial aid works


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It doesn’t matter whether you’re the student or the parents wading through college application and tuition figures: Going to college is a huge life decision, almost always synonymous with huge sticker shock.

U.S. News & World Report clocks the average tuition cost among public and private institutions as slowly but steadily increasing annually: $36,801 for private schools, $22,577 for public schools as an out-of-state student, and $10,116 for public schools as an in-state student.

Tuition, it should be noted, does not include room and board and other living expenses, so it’s no wonder that as of 2019 there is approximately $1.6 trillion in student loan debt nationwide—it all adds up, quickly.

Fortunately, there are financial aid systems in place for college students to help offset all those accumulating costs. Unless you’re expecting a huge inheritance or some unexpected windfall, going to college will likely mean coming up with a game plan to make it possible.

Here’s a comprehensive guide to help familiarize yourself with the ins and outs of college financial aid.

NOTE: Many colleges and college students are influx due to COVID-19 regarding their upcoming academic calendar, whether classes will be taught face-to-face or online, and how this may or may not impact tuition—which in turn may or may not impact financial aid policies. This article is a general guide to help both students and parents get acquainted with how to get financial aid for college and devising strategies to make college a stronger possibility for those who want to attend and earn degrees.

Related: Importance of junior year of high school

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What Is Financial Aid, Anyway?

Broadly speaking, the term “financial aid” refers to any number of funding channels that are available to assist students to cover the many costs incurred by pursuing a post-secondary school degree.

Financial aid is available from federal and state governments, educational institutions, and private organizations. It can also be awarded in the form of loans, grants, scholarships, and work-study programs.

Schools don’t typically expect enrollees to cover college costs from their savings and income alone. According to the 2019 Sallie Mae/Ipsos survey “How America Pays for College,” the typical family covered 25% of college costs with scholarships and grants.

This 25% can come in the form of many different potential resources. There isn’t necessarily a “best” option, since selecting the one (hopefully ones) that can help bolster your future college plans comes down to the financial aid’s availability of funds, your goals, and your plans.

Also, the amount of aid a student can potentially receive varies depending on federal, state, and institutional guidelines. Additionally, the type of aid determines whether it will have to be repaid: federal grants don’t need to be repaid, for example, but a loan will.

Should you be fortunate enough to be awarded federal financial aid, you’ll receive a financial aid award letter. These can be confusing to decipher, but this guide to navigating it could come in handy.

In sum: Just because an offer is being made doesn’t mean you have to accept it and there isn’t wiggle room to argue for reconsideration.

This Offer Letter Decoder created by non-profit news site The Hechinger Report could be a helpful tool to help demystify an offer letter. SoFi also has resources with information on financial aid secrets worth reviewing if you’re pursuing college financial aid. And if you are in a position to accept financial aid, here’s a guide on how your financial aid potentially may shift year-to-year as a student.

It is also worth noting that the Sallie Mae/Ipsos survey taps into four strategies that some families may consider to help mediate college costs, even if they aren’t quite ready to apply for financial aid. These include things like enrolling in advanced placement courses, dual-enrolling in community college, or investing in talents to increase the chances of earning a scholarship.

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Federal Student Aid

Here’s the first spoonful of alphabet soup: FAFSA, the Free Application for Federal Student Aid, is often the first step when exploring federal financial aid for college.

It’s an application used by many colleges, universities, and state agencies in deciding who gets aid—and how much. (Private colleges use a supplemental form called the College Scholarship Service Profile, or CSS, which is more detailed and can be more time-consuming to complete.)

The form itself is not overly cumbersome, but the US Department of Education includes a guide on what to do if you’re unsure how to fill in any of the blanks on your FAFSA. The important thing to keep in mind with the FAFSA are its deadlines.

The Federal Student Aid office advises filling out its form as soon as possible if you’re even loosely considering applying for federal financial aid.

There’s a run-down of the deadlines here, but the key ones for the 2020-2021 academic year, for example, is June 30, 2021 to submit your FAFSA, and the window for corrections or updates is by 11:59 p.m. Central Time, September 11, 2021. Note that each state and college may have its own deadlines on top of that.

The general recommendation to fill out the form as soon as possible should not be overlooked: Both the federal government and various states award financial aid that may include grants and scholarships which, if you qualify for, won’t have to be repaid.

Some states award aid on a first come basis, so submitting a FAFSA application early could be helpful. Another wrinkle to keep in mind is FAFSA is not an island unto itself. Many colleges use the FAFSA to in turn determine how much financial aid to award to students, if any.

A FAFSA application is also a pre-requirement to be considered for federal grants like the Pell Grant, which is “usually awarded only to undergraduate students who display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree.”

The grant does not need to be repaid, though eligibility is based on a family’s expected family contribution (which is information that is supplied via the FAFSA).

FAFSA’s website has a comprehensive list of federal grants offered by the U.S. Department of Education, with options for military veterans and teachers. This one-sheeter has a quick overview of various federal grants available, thoughtfully condensed into an at-a-glance rundown.

Finally, federal work-study programs are available to eligible college students, providing part-time jobs to help pay for education expenses. Such programs usually encourage community service work and work related to the expected course of study. Here’s’s official site tackling the FAQs of these highly variable programs.

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State-Based Student Aid

Depending on where your school is, you’ll have many different options when it comes to getting the money you need to pay for school.

Because there is so much variability across each state, one good thing to remember is to read the materials you come across when applying for state-level aid carefully, thoroughly, and repeatedly—including the fine print. Some aid opportunities have residency requirements, and some schools may also offer state-based aid or discounts.

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Other Sources for College Financial Aid

A two-sided coin that factors into one of many, many ways to approach financial aid for college is need-based federal student aid versus merit-based aid.

Some federal aid is need-based—like the Pell Grant and Direct Subsidized Loans (more on this loan type below)—meaning eligibility is based solely on the assets and income of the prospective student and their family. Factors like test scores or athletic ability, for example, have no bearing here.

The reverse is true for merit-based scholarships, which can include a wide variety of talents and interests: artistic, academic, athletic, etc.

Publishing an exhaustive list of literally every merit- and need-based aid opportunity would be near impossible, so one of the best options to find information on them is to speak to someone in admissions or to your guidance counselor who can point you to ones that might apply or often apply based on their curricula, programs, school, or state.

There are tons of online scholarship search sites out there, and dedicating some time to finding and applying as many as make sense for you can be a valuable way to spend some time—and can hopefully help you pay for some of your education expenses.

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Federal Student Loans

Most students’ federal financial aid packages include federal student loans, which are awarded based on financial need and the cost of attending college. These include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.

The advantages of federal student loans include low, fixed interest rates, no credit checks required to borrow them, unique borrower protections (like forbearance and deferment), and repayment plans based on income and/or your commitment to eligible public service work post-graduation.

With Direct Subsidized Loans, the government pays the interest while the student is attending school at least half-time. That’s what the “subsidized” means here. These loans are awarded based on financial need.

Direct Unsubsidized Loans are awarded regardless of financial need, but borrowers are responsible for paying the interest on these loans from the moment you get them—or you can defer interest payments and the total that adds up will be added back onto the loan principal (that is, the total base sum you were awarded) for you to repay.

This capitalized interest can lead to you paying substantially more for the money you borrowed, because the total dollar amount of interest you didn’t pay is added onto the total amount of the loan you took out in the first place, and then you have to pay interest on that new total.

Direct PLUS Loans are also unsubsidized, and are awarded to either eligible graduate students or parents of undergraduate students and require a credit check to ensure there’s no “adverse credit history.” In short, that means they can be more difficult to qualify for as compared to Direct Unsubsidized Loans.

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Private Student Loans

If your federal student aid package and other forms of funding don’t quite cover your cost of attending college, there are also private student loans to consider.

The details on private student loans vary, because the terms and criteria will depend on both the individual lenders and the circumstances of the borrowers.

But if there’s any general way private student loans might be more appealing is because they, unlike some federal loans, can be made up in amounts up to 100% of the cost of college tuition and living expenses.

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Financial Aid Isn’t Just Loans

There’s a whole rainbow of options available to people who want to go to college and aren’t sure how they’ll ever be able to afford it.

There are many more loans and programs that are available than listed here—but a good starting strategy is to see how much financial aid you can receive that does not require repayment, and if you come up short, start weighing your options.

Along with scholarships and state-based grants, start with the FAFSA because federal aid packages will likely have the best terms for students—and because it’s a requirement for many other aid options.

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