Types of Financial Aid

Written by

George D. Baker


August 14, 2014


Financial_Aid_TypesEducation costs are rising quickly these days, so it is definitely important to be aware of all of the different types of financial aid available when you are planning how to finance your college education. Eligibility for financial aid is based on the amount of money that remains after a student’s Expected Family Contribution (EFC) is deducted from education costs. There are four major types of financial aid available, including scholarships, grants, loans, and work-study programs.


Based on merit or a combination of merit and need, a scholarship is basically just money granted to you from a sponsor or organization that does not have to be paid back. Typically, scholarships are awarded to students based on outstanding performance in a certain area, such as academics, sports, or music. Scholarships are issued from many sources, including postsecondary institutions, federal and state governments, corporate donors, or local community groups. Most scholarships include a distinct application process.


Available to students that demonstrate financial need and can be applied to tuition costs and other expenses related to education. Sources of grants include the federal government, state government, educational institutions, private organizations, and professional associations. Grants do not have to be paid back. Examples of federal grants include the Federal Pell awarded on the basis of need and may be used toward tuition, books, room and board, and other educational costs and the Teacher Education Assistance for College and Education (TEACH) Grant available to students who intend to pursue teaching careers. State grant programs are based on both need and merit and need-based programs follow the same guidelines as federal grant programs.

Student Loans

Funds that must be paid back and are available to students and parents at the federal and private levels. These loans typically include varying interest rates. Many schools place caps on loans, but enough money may be included to pay tuition, housing, and other expenses.

Federal loans are awarded based on financial need and are guaranteed by the federal government. These loans are offered as subsidized or unsubsidized. If a loan is subsidized the government pays the interest owed and unsubsidized loans require students to pay the interest. Some student loans are based on financial need and others are available to all students regardless of income. Examples of federal loans include Direct Stafford Loans and Federal Perkins Loans. Federal loans commonly offer fixed interest rates and repayment and forgiveness options.

Private Education Loans, also called Alternative Loans, are credit-based loans that assist students with the actual costs of education. Private lenders, such as banks, offer them and eligibility is often determined by credit score. These loans tend to cost more than federal loans and offer variable interest rates. It is recommended to only consider private student loans after exhausting eligibility for federal loans. Many times, students applying for private loans must have a co-signer.

Parent loan programs are available to parents to help with their qualifying children’s education. An example of a parent loan is the Federal Parent Loan for Undergraduate Students (PLUS).

Consolidation loans are a combination of federal and private loans that may guarantee a lower interest rate. Services like Student Loan Consolidator can allow one to consolidate their various loans, making repayment simpler. 

Work Study Programs

These programs are federal or state government-supported and enable students to defer tuition fees if they are working part-time in a certain field while attending school. Students can commonly get gobs related to their program of study. The programs promote community service and relevant work experience and are usually flexible and geared to work around student schedules. No loans are involved, but students pay tuition costs with the work they complete. Work-study programs are typically available to students with the highest financial need and placement is often limited.

Written by:  George D. Baker

George D. Baker is a long-time contributor to College Mouse. Now retired, Mr. Baker volunteers at adult education programs in his local community.

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