What types of financial aid are there?

Male student looking at a brochure with his dad in the kitchen; mom and sister in the background

Explaining the different types of financial aid.

When you’re thinking about how to pay for your student’s college education, you may think about the term “financial aid.” It’s a common phrase that encompasses a number of different types of aid. Let’s break it down a bit so you can better understand the different types of financial aid that may be available to your student.


This is financial aid that doesn’t have to be repaid. Grants are often awarded based on financial need, while scholarships are often awarded on merit. Grants and scholarships can come from the federal or state government, your student’s college, or from private or nonprofit organizations.

  • Pell Grants provide need-based grants to undergraduate students. The money doesn’t have to be repaid (unless your student withdraws from school before finishing an enrollment period).
  • State aid is primarily available to students who attend a college in their state of residence.
  • Institutional aid is provided by public and private colleges and universities to help their students pay for tuition and fees.

Student loans:

These are loans that do need to be repaid, with interest. There are two types of student loans: federal student loans, offered by the federal government and private student loans offered by banks or other lenders.

  • Federal Direct Loans  (subsidized and unsubsidized) are available to undergraduate and graduate students attending college at least halftime.
  • Federal Direct PLUS Loans  are loans offered by the federal government. These loans are available to graduate or professional degree students and parents of dependent undergraduate students. Applicants cannot have an adverse credit history.
  • Private or alternative student loans are credit-based student loans, which may be available for graduates, undergraduates, professional degrees, or qualified certificate or licensure programs. There may also be financing options available for someone (such as a parent, relative, or sponsor) who may be interested in borrowing to help the student pay for college. These loans are provided by banks or other lenders.

Work-study program:

These are part-time jobs, funded by the federal government, and are offered by colleges to help their students earn money.

How to apply

As you consider these types of financial aid, it’s important to know how to apply. Completing the FAFSA (Free Application for Federal Student Aid) is the first step to securing various types of financial aid. You and your student should plan to complete the FAFSA as soon as possible after October 1, during the fall of your student’s senior year. You can find it online at fafsa.ed.gov.

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