Student financial aid in the United States is funding that is available exclusively to students attending a post-secondary educational institution in the United States. This funding is used to assist in covering the many costs incurred in pursuing post-secondary education. Financial aid is available from federal and state governments, educational institutions, and private organizations. It can be awarded through grants, loans, work-study, and scholarships. To apply for federal financial aid, students must first complete the Free Application for Federal Student Aid (FAFSA).
The financial aid process has been criticized for its part in enrollment management, whereby students are awarded money not based on merit or need, but on the maximum the student families will pay.
Types of financial aid Grants In the United States, grants come from a wide range of government departments, colleges, universities or public and private trusts. Grant eligibility is typically determined by financial need. The application process is set by the agency providing the funds and often relies on data submitted via the FAFSA.
While the terms grant and scholarship are frequently used interchangeably, there is a difference. Scholarships may have a financial need component but rely on other criteria as well. Some private need-based awards are confusingly called scholarships and require the results of a FAFSA (the family's EFC). However, scholarships are often merit-based, while grants tend to be need-based.
Some examples of grants commonly applied for in the U.S.: Federal Pell Grant, the largest of the federal grant options and based exclusively on an individual's Expected Family Contribution as calculated using the FAFSA data. For students attending a university or Cal State in the state of California there are also resources like the Cal Grant award that is awarded every year. Cal Grants help students choose an institution that best suits them and not based on what they can afford. There are different types of grants that the California Student Aid Commission awards to different students. For example, Cal Grant A provides full mandatory tuition and feeds to students. Funds from Cal Grant B are given to eligible low-income and underprivileged students. For first-year students, an amount of up to $1,648 for books and living expenses were provided in the school year 2023–24. The California Student Aid Commission awards different amounts depending on the student's need. Federal Supplemental Educational Opportunity Grant (FSEOG), a federal grant program that is need-based, but directed towards students whose FAFSA results exhibit exceptional financial need, such as being among the lowest Expected Family Contribution (EFC). The Teacher Education Assistance for College and Higher Education (TEACH) Grant requires taking certain classes to get the grant, followed by performing a specific job, sometimes in a specific location, to keep the grant from becoming a loan. Institutional Grants, grants provided by educational institutions. Some institutional grants are based on academic achievement (merit awards or merit scholarships), while others are based on financial need, and some are a combination of the two. Private and Employer Grants, grants provided by the private sector, for students who meet specific criteria for eligibility related to the private organization. State Grants, are public funds received from state agencies that are completely separate from those listed in the federal sector. These grants vary by state and are awarded based on financial need.
Education loans
An education loan is a loan taken out by the student (or parent) to pay for educational expenses. Unlike scholarships and grants, this money must be repaid with interest. Educational loan options include federal student loans, federal parent loans, private loans, and consolidation loans.
Federal student loan programs Federal student loans are loans directly to the student; the student is responsible for repayment of the loan. These loans typically have low interest rates and do not require a credit check or any other sort of collateral. Student loans provide a wide variety of deferment plans, as well as extended repayment terms, making it easier for students to select payment methods that reflect their financial situation. There are federal loan programs that consider financial need.
Direct subsidized loans Direct subsidized loans are the most sought, as they have few requirements other than enrollment and demonstration of financial need. However, the amount that can be borrowed is determined by the school and may not exceed the financial need, which is based on the EFC using information from FAFSA. It is not required to begin repaying these loans while the student are in school at least part-time. They also have a six-month grace period after leaving the school. These loans also offer a deferment period in some cases.
Direct unsubsidized loans Direct Unsubsidized Loans are available to all undergraduate and graduate students, with no requirement to demonstrate financial need. The school determines how much can be borrowed based on the cost of attendance and adjust for any other financial aid the student is receiving. However, the interest must be paid on these loans even during school. Interests that are not paid during enrollment accrue and are added to the principal amount of the loan.
Parent loans Federal parent loans are a federally funded loan option if the student is dependent on his or her parents. Parent loans allow parents to take out student loans, the repayment of which will be their responsibility. The parents use these loans to pay for educational expenses on behalf of the student. For undergraduate students, there is the parent loan for undergraduate students or PLUS Loan. This loan allows parents to borrow up to the total cost of attendance, minus any other financial aid the student receives. Eligibility will be determined upon review of the parent's credit history.
Private loans Private student loans are offered by private lenders (financial institutions). These loans typically have much higher interest rates, have fewer repayment/deferment options, cannot be discharged through bankruptcy, and are not supervised by any agency.
Consolidation loans Consolidation loans combine two or more student and/or parent loans into one loan. They are an option for those who find themselves struggling with multiple student loan payments. Consolidation loans are available for most federal loan types, and some private lenders offer private consolidation loans for private education loans.
Work-study
The Federal Work-Study Program is a form of financial aid. Work-study jobs allow students to get campus jobs, when possible within their field of interest, and are more flexible than off-campus part-time jobs because they are designed to accommodate student schedules. In 2022, Williams College became the first institution of higher education in the United States to eliminate work-study (along with loans) from their financial aid programs by offering an "all grant" financial aid package.
Scholarships
While the terms grant and scholarship are frequently used interchangeably, there is a difference. Scholarships may have a financial need component but rely on other criteria as well. Some private need-based awards are confusingly called scholarships and require the results of a FAFSA (the family's EFC). However, scholarships are often merit-based, while grants tend to be need-based.
Scholarships, similar to grants, do not need to be repaid. Scholarships come from state, educational institutions, and private agencies. Scholarships can be awarded based on merit, financial need, student characteristics (such as gender, race, religion, family and medical history, and the like), creativity, career field, college, and athletic ability, among other categories.
There are search engines available to find scholarships such as Peterson's, Unigo, Fastweb, Cappex, Chegg, The College Board, and Niche (formerly known as College Prowler).
Financial aid application process
The student's financial "need" In the college financial aid process in the United States, a student's "need" is a figure that colleges use when calculating how much financial aid to offer a student. It is determined by taking the college's Cost of Attendance, which current rules require each college to specify. Then it is subtracted the student's Expected Family Contribution, based on the student's income and assets, and calculated by the U.S. Department of Education under rules set by Congress and processed using the FAFSA system. For unmarried students under 24, Congress mandates that parental income and assets be included. The resulting figure is the student's "need". Colleges attempt to provide students with enough financial aid to meet all student need, but in most cases are unable to do so completely. The result is "unmet need".
Under federal law, if there are special circumstances such as loss of a job or large medical expenses, college financial aid offices have considerable liberty to lower a student's calculated need, thus resulting in a larger aid award.
Application process for need-based aid
To qualify for need-based aid a student must have a significant amount of financial need, which is determined by the federal government based on the FAFSA. Using the information submitted on the FAFSA, the U.S. Department of Education calculates a figure called the Expected Family Contribution (EFC). If the EFC is less than the cost of attending a college, the student has a financial need (as the term is used in the U.S. financial aid system).
Students can file an appeal with their college financial aid office to seek additional financial aid, though the information about the process is not always clear or available online. SwiftStudent, a free service, provides template letters for college students.
Some well-to-do colleges have need-based aid of their own to distribute, in addition to federal and state aid (if any). These colleges require, in addition to the FAFSA, the CSS Profile financial form, which goes into greater detail.
Need-based aid Need-based financial aid is awarded based on the financial need of the student. The "need" of each student is a figure determined separately for each student. The Free Application for Federal Student Aid application (FAFSA) is generally used for determining federal, state, and institutional need-based aid eligibility. At private institutions, a supplemental application may be necessary for institutional need-based aid.