What Is Financial Aid? (2023)

What Is Financial Aid? (1)

Key Takeaways

  • Financial aid offers college students and their families partial or full funding to cover the costs of higher education.
  • There are multiple types of financial aid, including grants, scholarships, work-study programs, and loans.
  • You can find out how much financial aid you can get by completing and submitting the FAFSA.

How Financial Aid Works

Financial aid helps cover the costs of college attendance so families don’t have to pay them in full.It can come from a variety of sources, including the federal government, state agencies, community organizations, corporations, foundations, high schools, and more. It most commonly comes in the form of grants, scholarships, loans (private and federal), and work-study programs.

Note

In the 2020-2021 school year—the most recent available data—the average annual cost for undergraduate tuition, room and board, and fees for first-time, full-time undergraduate students at a private nonprofit college or university was $54,500. At a public institution, the average cost was $25,700.

When you’re looking for financial aid for college, the process generally starts by learning an aid program’s requirements and submitting an application. The source of the aid will then review your application to determine if you qualify. If you do, they will calculate the amount you qualify for and the terms and conditions attached to it.

The qualifications for financial aid are typically based on merit or need. To qualify for merit-based aid, a student’s achievements, academic or extracurricular, are taken into account. Need-based aid depends on a student’s level of financial need, often determined by analyzing their family’s income, benefits, and assets. Whether you receive need-based or merit-based financial aid depends on the type of aid you apply for.

It's important to note that you must remain eligible for financial aid throughout your time at a college or university. When you receive financial aid from your college or university, you must stay eligible to continue receiving aid. Eligibility requirements vary per institution, but the main thing schools are looking for is that you maintain “satisfactory academic progress,” which often includes having a certain grade point average (GPA).

Note

In 1965, President Lyndon Johnson established the federal government as the primary provider of financial aid by implementing the Educational Opportunity Grant (EOG) Program. The federal government continues to be a main source of financial aid for U.S. college students.

Financial aid can come from a variety of sources, including:

  • Federal government
  • State agencies
  • Community organizations
  • Corporations
  • Foundations
  • High schools

Aid most commonly comes in the form of grants, scholarships, loans (private and federal), and work-study programs.

When you’re looking for financial aid for college, the process generally starts by learning an aid program’s requirements and submitting an application. The source of the aid will then review your application to determine if you qualify. If you do, they will calculate the amount you qualify for and the terms/conditions attached to it.

The qualifications for financial aid are typically based on merit or need. To qualify for merit-based aid, a student’s achievements, academic or extracurricular, are taken into account. Need-based aid depends on a student’s level of financial need, often determined by analyzing their family’s income, benefits, and assets.When looking over a family's financial picture there is a two-year look-back period.

Whether you receive need-based or merit-based financial aid depends on the type of aid you apply for.

Types of Financial Aid

Financial aid comes in many forms and is designed to help in different ways. But you don’t have to choose just one type of aid. You can often combine multiple types to cover your expenses.

TypeQualificationExample
GrantsGiftNeed-basedPell grant
ScholarshipsGiftMerit and need-basedCollege Board opportunity scholarships
Work-study programsEarnNeed-basedFederal work-study program
Federal student loansBorrowNeed-basedDirect loans

Grants

Grants are need-based aid programs that provide free money to students for higher education expenses. One highly common need-based grant is the Pell Grant, which is usually awarded to undergraduate students who show a high level of financial need. The Pell Grant offers amounts up to a yearly maximum, which is $6,895 for the 2022-23 award year. Grants are also offered from a variety of nongovernment sources. In most cases, the money offered from grant programs typically doesn’t need to be repaid as long as the program requirements are fulfilled.

Scholarships

Scholarships are financial aid programs awarded to students who meet the requirements set by the sponsoring party. Scholarships can be need based or merit based.

Full scholarships cover all of a student’s tuition expenses and textbooks, and they also may provide funds for living expenses. Partial scholarships, on the other hand, only pay for a portion of a student’s college expenses.

Note

The College Board has a Scholarship Search library that allows you to scan through over 6,000 scholarship programs offering more than $4 billion in aid.

Work-Study Programs

Work-study programs offer qualifying college students part-time jobs to help pay for their education. The federal work-study program encourages work that’s related to your studies or that serves the community. To be eligible, you must:

  • Be an undergraduate, graduate, and professional student
  • Demonstrate financial need
  • Attend a school that participates in the federal work-study program

Federal Student Loans

The federal government offers a variety of student loans that can be used to pay for college expenses. While you'll pay interest, these loans can offer benefits over private loans, such as fixed interest rates, loan forgiveness programs, postponement options, and income-driven repayment plans.Private student loans may also be an option, however, they don’t offer the same features and protections as federal student loans.

How To Get Financial Aid

You can apply for financial aid by completing the Free Application for Federal Student Aid (FAFSA). The FAFSA is a form used to determine your eligibility for financial aid from the federal government, many state governments, and most colleges.

When you submit the FAFSA, there are several factors that determine your eligibility, including:

  • The size of your family
  • Your year in school
  • The cost of attendance
  • Your expected family contribution (EFC), which is calculated based on your family’s income, assets, and benefits

Note

FAFSA applications open on Oct. 1 of each year for the following school year and close on June 30 at 11:59 p.m. CT. (or 12:59 a.m. EDT) at the end of each school year. For the 2022-23 school year, the FAFSA became available on Oct. 1, 2022, and must be submitted by no later than June 30, 2023. It is best to apply as early as possible but no later than the school year’s deadline.

After you submit your application, you can check your status using the Federal Student Aid (FSA) ID that you receive. You will then receive your Student Aid Report. Your aid report will explain all of the types of aid you qualify for, the amounts of each, and the leftover costs you can expect to pay for the year. If you are considering more than one college, you’ll be able to review the aid offers from each school and accept the one that suits you best.

The Federal Student Aid office recommends choosing aid in this order:

  1. Free money (scholarships and grants)
  2. Earned money (work-study programs)
  3. Borrowed money (federal student loans)

The financial aid office at your chosen school will often apply your aid to your outstanding balance and send you the remaining balance. If you still have an outstanding financial need, you can seek out financial aid from organizations with programs not included in the Student Aid Report.

Is Financial Aid Worth It?

Financial aid can help to lower the costs of your college education, reducing the amount you and your family have to pay or borrow. Choosing which aid to apply for will depend on a case-by-case basis. Generally, though, grants and scholarships are preferred, as you don’t have to pay them back in most cases. However, federal loans can also offer a more accessible and affordable alternative to private loans.

If you receive financial aid award offers from more than one school, look for the one that provides you with the most gift-based aid, as you won’t have to pay it back down the line.

Frequently Asked Questions (FAQs)

What is the maximum income to qualify for financial aid?

Maximum income limits will vary depending on the source of the financial aid you are seeking. However, when seeking federal student aid, there is no income limit. Instead, when you submit the FAFSA, many factors will be taken into consideration to determine your eligibility, including the size of your family, your year in school, the cost of attendance, and your EFC.

What is financial aid disbursement?

Financial aid disbursement refers to the process of a financial aid source sending approved financial aid to a recipient. In many cases, the funds go directly to a student’s college to cover the costs. In some cases, though, they may be sent to the student. Disbursements are typically received in two or more installments.

What financial aid is available for graduate students?

Graduate students may be eligible for various types of federal student aid including Pell grants, the federal work-study program, PLUS Loans, and Teacher Education Assistance for College and Higher Education (TEACH) grants. They may also qualify for aid from their school, state government, employer, foundations, and other organizations that provide scholarships.

Is there a limit on how much financial aid you can receive?

The maximum amount of financial aid you can receive depends on the program and your level of need. For example, when you fill out the FAFSA, your school subtracts your EFC from your cost of attendance (COA) to determine your financial need, becoming your maximum limit for financial aid. Further, specific programs often have limits. The Pell Grant, for example, has a yearly maximum as well as a limit on how many times you can receive the grant in your life.

What is a financial aid warning?

A financial aid warning is an alert to warn you that you are not currently meeting the standards to remain eligible for federal and other financial aid programs. If you don’t come into compliance within a given period, your aid will be suspended. You must meet the basic eligibility criteria throughout the time you’re receiving aid, not just when you apply.

What GPA is required for financial aid?

The GPA requirement for financial aid will vary depending on your source of financial aid and possibly your school. When it comes to federal aid, your college defines the GPA requirement you must meet to achieve satisfactory academic progress. To find out the limit, you’ll need to check with your school’s financial aid office or website.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

  1. National Center for Education Statistics. "Price of Attending an Undergraduate Institution."

  2. Federal Student Aid office. "If You Want to Keep Receiving Your Federal Student Aid, Make Sure You Stay Eligible."

  3. National Association of Student Personnel Administrators. "Federal Financial Aid Policy: Then, Now, and in the Future."

  4. Federal Student Aid. "Types of Financial Aid: Loans, Grants, and Work-Study Programs."

  5. Federal Student Aid. "Federal Pell Grants Are Usually Awarded Only to Undergraduate Students."

  6. College Board. "Search for Scholarships—Big Future."

  7. Federal Student Aid Office. "Federal Work-Study Jobs Help Students Earn Money To Pay for College or Career School."

  8. Federal Student Aid. "What Are the Deadlines for Filling Out the FAFSA Form?"

  9. Federal Student Aid. "SAR: Student Aid Report."

  10. Federal Student Aid Office. "Accepting Financial Aid."

  11. Federal Student Aid. "Receiving Financial Aid."

  12. Federal Student Aid Office. "What Is a Disbursement?"

  13. Federal Student Aid. "Packaging Aid."

  14. Federal Student Aid. "Regaining Eligibility."

  15. Rowan-Cabarrus Community College. "Financial Aid Warnings & Probation."

  16. Federal Student Aid. "Staying Eligible."

FAQs

What Is Financial Aid? ›

Financial aid is money to help pay for college or career school. Grants, work-study, loans, and scholarships help make college or career school affordable.

What is financial aid and how does it work? ›

Financial aid is money to help pay for college or career school. Grants, work-study, loans, and scholarships help make college or career school affordable.

Do you pay back financial aid? ›

You'll have to repay the money with interest. Subsidized loans don't generally start accruing (accumulating) interest until you leave school (or drop below half-time enrollment), so accept a subsidized loan before an unsubsidized loan. Next, accept an unsubsidized loan before a PLUS loan.

Is financial aid really free? ›

Subsidized loans are awarded based on a student's financial need, unsubsidized loans are not. So, you do have to pay back some types of financial aid awarded through the FAFSA process, but not all types of aid.

How much money do you get through financial aid? ›

Federal financial aid limits
Maximum amount (2022-23)
Direct Subsidized Loan$3,500 to $5,500 per year, depending on year in school
Direct Unsubsidized Loan$5,500 to $20,500 per year, depending on year in school and dependency status
Direct PLUS LoanTotal cost of attendance
Federal work-studyVaries by school
4 more rows
Feb 7, 2023

How does financial aid give you money? ›

In most cases, your child's school will give you your loan money by crediting it to your child's school account to pay tuition, fees, room, board, and other authorized charges.

What happens when you get financial aid? ›

Your financial aid office will apply your aid to the amount you owe your school and send you the remaining balance to spend on other college costs. One of the requirements to maintain financial aid eligibility is that you must make satisfactory academic progress. And don't forget to complete a FAFSA® form each year!

Do I have to pay FAFSA back if I fail a class? ›

Failing a class does not force you to pay back your FAFSA financial aid. However, it could put you at risk for losing eligibility to renew it next semester. If you do not make Satisfactory Academic Progress, or SAP, your federal financial aid is at risk of being suspended.

How much does FAFSA give based on income? ›

The FAFSA formula doesn't expect students or families to use all of their adjusted available income to pay for college. The formula allocates 50 percent of a dependent student's adjusted available income to cover college expenses and anywhere from 22 to 47 percent of parents' available income.

What happens if I don't qualify for FAFSA? ›

Your school may offer an option to advance your financial aid, offer a school-based loan program, or have an emergency aid procedure. Several schools now offer emergency aid opportunities if you experience unexpected expenses or challenges that are making it difficult for you to complete the semester.

Is FAFSA a loan or free? ›

The FAFSA is not a loan. It is an application form. However, you can use the FAFSA to apply for financial aid and federal student loans. The FAFSA, or Free Application for Federal Student Aid, is used to apply for several types of financial aid, including grants, student employment and federal student loans.

Can I use FAFSA money for a laptop? ›

Federal Pell Grants can also be used to purchase laptops (in a roundabout way). These grants are paid directly to your school to cover tuition and fees, but if there's money left over you may be issued a refund check. This can then be used to purchase educational supplies such as a laptop.

Will financial aid pay for everything? ›

The financial aid awarded based on the FAFSA can be used to pay for the college's full cost of attendance, which includes tuition and fees. While it is possible for student financial aid to cover full tuition, in practice it will fall short.

How much should I accept in financial aid? ›

However tempting it might be to use that extra money to buy a brand new $1,800 laptop or textbooks or anything else, if you can cover those expenses out of pocket then that is what you should do. Only accept enough financial aid to cover the 25% of tuition not covered by your parents' savings and your scholarship.

How many times do you get paid from financial aid? ›

Generally, your grant or loan will cover a full academic year and your school will pay out the money in at least two payments called disbursements. In most cases, the school must pay at least once per term (semester, trimester, or quarter).

Does FAFSA check your bank account? ›

Students selected for verification of their FAFSA form may wonder, “Does FAFSA check your bank accounts?” FAFSA does not directly view the student's or parent's bank accounts.

Do you get to keep leftover FAFSA money? ›

By returning extra student loan money, you can minimize your student loan debt and reduce interest charges. You can return the unused portion — without paying interest or fees on that amount — within 120 days of the disbursement date. After that, you can repay it, but interest and fees will have accrued.

Is financial aid money yours? ›

Typically, your college applies grant or loan money toward your tuition, fees, and, if you live on campus, room and board. Any money left over is paid to you for other expenses.

Is financial aid given to everyone? ›

Our general eligibility requirements include that you have financial need, are a U.S. citizen or eligible noncitizen, and are enrolled in an eligible degree or certificate program at your college or career school. There are more eligibility requirements you must meet to qualify for federal student aid.

What GPA does FAFSA require? ›

To be eligible for federal student aid and college financial aid, a student must be making Satisfactory Academic Progress (SAP). This generally consists of maintaining at least a 2.0 GPA on a 4.0 scale (i.e., at least a C average) and passing enough classes with progress toward a degree.

How many classes can you fail before losing financial aid? ›

How Many Classes Can You Fail With Financial Aid? If you fail one class but have an excellent academic track record before that, then your GPA may be strong enough to stay qualified for financial aid. Recovering your GPA and requalifying for financial aid is often easier if you've just failed one class.

Can you lose FAFSA for bad grades? ›

One of the many requirements you need to meet to keep your financial aid is maintaining a certain GPA set by your school. If your grades dip below that or you have an incomplete class or withdrawal, it could cause you to lose access to all financial aid, including federal loans.

What is the highest income to qualify for financial aid? ›

There are no income limits to apply. Many state and private colleges use the FAFSA to determine your financial aid eligibility, and you must submit a FAFSA every year to receive federal financial aid.

Can you get financial aid if your parents make 100k? ›

Can you get financial aid if your parents make $100,000? You could receive financial aid, even if your parents make $100,000. The calculation considers other factors in addition to income, such as the size of your family, other family members in school, and the cost of attendance.

Will I get financial aid if my parents make over $200 K? ›

The good news is that the Department of Education doesn't have an official income cutoff to qualify for federal financial aid. So, even if you think your parents' income is too high, it's still worth applying (plus, it's free to apply).

Why was i denied financial aid? ›

You're not making satisfactory academic progress at your school. You've defaulted on an existing federal student loan. You owe a refund on any previous federal grants. You're enrolled in an academic program that makes you ineligible for funding.

How can I afford college without loans? ›

  1. Apply for Grants. ...
  2. Scholarships. ...
  3. Ask for More Money. ...
  4. Get a Work-Study Job. ...
  5. Take Required Core Classes at the Local Community College. ...
  6. Live Off Campus. ...
  7. Take Advantage of Employer Reimbursement Programs. ...
  8. Ask Friends, Family, and Even Strangers.
Nov 29, 2022

Will colleges accept you without FAFSA? ›

You've heard about the FAFSA (Free Application for Federal Student Aid), but do you NEED to complete it with your college applications? The short answer is no. Applying to colleges does not necessitate filling out the FAFSA, but you will likely want to do so.

How long do you have to pay back FAFSA loans? ›

The Standard Repayment Plan is the basic repayment plan for loans from the William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program. Payments are fixed and made for up to 10 years (between 10 and 30 years for consolidation loans).

How much is FAFSA per semester? ›

Independent undergraduates can take out $9,500, with $3,500 of that total in subsidized loans. This is $2,750 per semester or $4,750 per semester, with $1,750 in subsidized loans.

Do you have to pay back FAFSA refund checks? ›

It's important to know that refund checks are not “free” money. Any amount that students choose to spend will have to be repaid with interest.

Can I use FAFSA money for groceries? ›

The Office of Federal Student Aid and most private student lenders state that all student loan funds must be used for one or more of the following education expenses: Tuition and fees. Room and board. Groceries.

Can I use my financial aid to buy clothes? ›

Support includes money, housing, food, clothes, medical and dental care, gifts, loans, payment of college costs, etc.

Can FAFSA see what you buy? ›

FAFSA doesn't check anything, because it's a form. However, the form does require you to complete some information about your assets, including checking and savings accounts. Whether or not you have a lot of assets can reflect on your ability to pay for college without financial aid.

Does FAFSA only cover 4 years? ›

Eligible students may receive up to a maximum of four years of full-time grant payments. The actual number of years of eligibility will depend on the student's class level at the time an award is initially received.

What is considered too much for financial aid? ›

There is no set income limit for eligibility to qualify for financial aid through. You'll need to fill out the FAFSA every year to see what you qualify for at your college. It's important to make sure you fill out the FAFSA as quickly as possible once it opens on October 1st for the following school year.

How long does it take to get FAFSA money? ›

After you have submitted the FAFSA and then submitting the requested documents to the Financial Aid Office: 2-3 weeks. SMC to process your paperwork and awards your financial aid: 4 to 8 weeks.

Should I empty my bank account for FAFSA? ›

Empty Your Accounts

If you have college cash stashed in a checking or savings account in your name, get it out—immediately. For every dollar stored in an account held in a student's name (excluding 529 accounts), the government will subtract 50 cents from your financial aid package.

What is the 60% rule for financial aid? ›

Federal Student Aid: If you leave school before 60% of the academic term is over, you lose eligibility for all Federal student aid programs. You will be required to repay a pro-rated share of the aid you have received for the term. Loans are repaid in accordance with the terms of the promissory note.

Can I decline financial aid after accepting? ›

After Your Loan Is Disbursed

You have the right to turn down a loan or to request a lower loan amount. If you accept less than the full amount of the loan you're offered, you can increase the amount (up to the offered amount) later on.

How do I know if FAFSA gave me money? ›

You can also check the status of your FAFSA form by contacting the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243). To check on the status of financial aid being disbursed (paid out) to you or your account, check with your school's financial aid office.

How long is FAFSA good for? ›

The Free Application for Federal Student Aid (FAFSA®) form applies to a single academic year. That means you need to submit a FAFSA form each year—and make sure you meet the FAFSA deadlines for state and college aid to maximize the amount and types of aid you could receive.

Is financial aid per year or total? ›

In most cases, you'll need to reapply for federal student aid each year you're in school. But does that mean completing a new Free Application for Federal Student Aid (FAFSA) per semester or just once per year? The fast answer: once per year.

Will my parents savings account affect my financial aid? ›

Colleges will expect parents to use up to 5.64 percent of their assets toward college. Protected Assets. The asset protection allowance was eliminated in the 2023-2024 FAFSA, which means all of a family's assets are taken into account in the federal aid calculation.

Does having money in your bank account affect financial aid? ›

If all money was pulled from checking and savings the day before the FAFSA was filed, the answer is zero. A nominal value of $200 or $300 may be listed, but there is no reason to include any more cash assets. Cash assets sink financial aid eligibility, but are virtually untraceable unless admitted to on the FAFSA.

What documents are required for FAFSA? ›

Your federal income tax returns, W-2s, and other records of money earned (Note: You may be able to transfer your federal tax return information into your FAFSA form using the IRS Data Retrieval Tool) Bank statements and records of investments (if applicable) Records of untaxed income (if applicable)

What is the maximum income to qualify for FAFSA? ›

There are no income limits to apply. Many state and private colleges use the FAFSA to determine your financial aid eligibility, and you must submit a FAFSA every year to receive federal financial aid.

What is the difference between financial aid and FAFSA? ›

Financial aid is any form of funding that helps you pay for college, including scholarships, grants, loans and work-study programs. You have to complete the Free Application for Federal Student Aid, known as the FAFSA, to be eligible for most forms of financial aid.

Does everyone get aid from FAFSA? ›

Our general eligibility requirements include that you have financial need, are a U.S. citizen or eligible noncitizen, and are enrolled in an eligible degree or certificate program at your college or career school.

How much money does financial aid give you per semester? ›

Pell Grant

The maximum amount available is $6,495 for the 2021-2022 school year. The amount usually increases every year to account for inflation. Students can receive between $650 and $6,495 each year. The amount awarded is usually split 50/50 between the fall and winter semesters.

How long does it take to get approved for financial aid? ›

If you submitted your Free Application for Federal Student Aid (FAFSA®) form online, then the U.S. Department of Education (ED) will process your application within three to five days. If you submitted a paper FAFSA form, your application will be processed within seven to ten days.

Does financial aid go to your bank account? ›

Federal loans and grants, as well as state loans and grants, will be applied first to your student bill to cover tuition and other school costs. Then any leftover will be deposited to your bank account.

Who should not file FAFSA? ›

No sense in drumming up drama just to be rejected for scholarships and grants. If a family makes $350,000 a year and has over $1 million in reportable assets, and has only one child in a public university the family may not need to fill out the FAFSA.

Should I apply for FAFSA or college first? ›

You should apply for admission to the colleges you are interested in BEFORE filing your FAFSA. Once you are accepted to the colleges you have applied to, you can add those schools to receive financial aid award offers from when you file your FAFSA.

Will FAFSA cover my entire tuition? ›

The financial aid awarded based on the FAFSA can be used to pay for the college's full cost of attendance, which includes tuition and fees. While it is possible for student financial aid to cover full tuition, in practice it will fall short.

Is FAFSA free or a loan? ›

The FAFSA is not a loan. It is an application form. However, you can use the FAFSA to apply for financial aid and federal student loans. The FAFSA, or Free Application for Federal Student Aid, is used to apply for several types of financial aid, including grants, student employment and federal student loans.

What is the first step in applying for financial aid? ›

Completing the Free Application for Federal Student Aid (FAFSA®) form is the first step to obtaining federal student aid to help pay for your college or career school.

Can I get financial aid if I make over 100k? ›

There is no set income limit for eligibility to qualify for financial aid through. You'll need to fill out the FAFSA every year to see what you qualify for at your college. It's important to make sure you fill out the FAFSA as quickly as possible once it opens on October 1st for the following school year.

Who fills out FAFSA student or parent? ›

Note: Dependent students are required to report parent information on the FAFSA form. A parent means your legal (biological or adoptive) parent or stepparent, or a person that the state has determined to be your legal parent.

Does parents income affect FAFSA? ›

If you are a dependent student, include your and your parents' or guardians' untaxed and taxed income on the FAFSA, along with other information such as their assets and benefits. Independent students shouldn't include anyone else's financial information on the FAFSA, unless they're married.

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