How to Pay for College: a Guide to Understanding Financial Aid

It’s no secret that the cost of college is continuing to rise, and its effects are crippling families financially. Add in multiple children attending college, and it’s almost impossible for families to pay for higher education without going under. And it’s not just traditional families who are suffering. Nontraditional students with dependent children are finding it difficult to fund college and pay back loans too. Research by the Center for American Progress reveals that “just one-third of student-parents finish college within six years. And among student-parents who borrow, half default on their loans within 12 years of starting college.”

In addition, a degree in higher education is becoming more and more important in the workforce, but the rising cost is putting pressure on people to make the choice between scrapping their dream of a degree or accruing mounds of debt to get it.

In fact, the Federal Reserve Bank of New York Consumer Credit Panel/Equifax reports that 44.5 million students have taken out student loans to pay for college, a monetary value that totals over $1.61 trillion (compared to just over 700 million back in 2009).

As overwhelming as paying for college seems, it can be more manageable with some research and planning. But we know that even that feat can seem difficult. You might be thinking questions like, “What’s the difference between scholarships and grants?” or “What’s the difference between a grant and a student loan?”

Plus, there’s so much data out there that it could be easy to get lost in a sea of information.

That’s where we come in.

In this article, we are going to:

  • Define what financial aid is
  • Explain the various types of available financial aid
  • Explain how you can apply for it
  • Address frequently asked questions about financial aid
  • Clarify questions like “What’s the difference between a grant and a scholarship?”
  • Provide resources to help you on your search for financial aid

What is Financial Aid?

Financial aid helps students pay for college and all the surrounding costs, including transportation, books, supplies, and room and board. It can be sourced from the government, your state, colleges and schools, organizations, or private vendors.

If your family cannot pay for your college in full based on personal savings, you’ll need to find supplemental ways to pay for your education. You can receive financial aid through:

  • State Aid: this money would come from your state government. Contact your school counselor or your state’s financial aid agency for more information.
  • Federal Aid: this money would come from the federal government
  • Institutional Aid: this money would come straight from the college you are attending
  • Corporate Reimbursement: this money would come from your employer. Some companies will reimburse you for a college (or graduate level) degree. Most reimbursement programs are not loans—meaning you won’t have to pay anything back. However, your employer might require that you work for the company for a set amount of years after you earn your degree. Speak with your HR department to find out if your corporation participates and what the stipulations would be.
  • Private Aid: this money would come from private loans or scholarships through private organizations

You can earn financial aid based on two factors:

  • Merit-based: monies earned through academic achievement, athletics, student achievements, or extra-curricular activities
  • Need-based: based solely on your financial situation

Types of Financial Aid:

We know that all the different types of financial aid information can be overwhelming, and sometimes it’s hard to know where to start. First, you’ll need to understand the differences between grants, scholarships, loans, and work-study so you can pursue the type of financial aid that is best for you and your situation.

Let’s take a closer look.


Grants are commonly referred to as ‘gift aid’ because these monies do not need to be repaid and are dispersed based on financial need. You can receive a grant from many different entities, including the federal government, your state government, or private organizations.

If you are looking for federal grants, here are the 4 available:

  • Federal Pell Grants: Pell Grants can award up to $6,195 per school year (number taken from the 2019-2020 awards and subject to change) and are awarded to those with severe financial need.
  • Federal Supplemental Educational Opportunity Grants (FSEOG): This grant is given to the schools themselves, who then disperse the monies to qualifying students. Awards range from $100 to $4,000 per year.
  • Teacher Education Assistance for College and Higher Education (TEACH) Grants: TEACH Grants award grants of up to $4,000 to students completing the necessary coursework to become a teacher. Note that if you do not fulfill your teaching requirements, this grant becomes a loan.
  • Iraq and Afghanistan Service Grants: these grants are given to students whose parent or guardian died in service in Iraq or Afghanistan after September 11, 2011, during their time in U.S. armed forces.

Though grants are considered “free money,” you might have to pay back a portion of your grant if you withdraw from your program or don’t take the minimum amount of course credits. Therefore, it is important to stay on track and on top of your course load and learn the stipulations of your grant requirements before accepting money.


Work-study programs are federally funded and help students find part-time work that in turn helps pay for college. They are typically on-campus jobs like administrative positions or research assistantships. Off-campus positions could potentially be available, too.

Work-study programs won’t cover the entire cost of your education, so it will be important to combine other sources like personal savings, scholarships, and loans as well.

To apply for a work-study program, your first step will be to fill out the FAFSA form (see below—How to Apply for Federal Financial Aid) and check the box that says you want to be considered for a work-study program. You are not guaranteed a placement, but the FAFSA will reveal how much work-study money you could be eligible for.


You can also earn free scholarships in both small and large amounts from private organizations or your local state. Like other forms of financial aid, you can get easy scholarships either through your merit or your financial need, and similar to grants, you won’t need to pay free scholarships back. There are more categories of eligibility that can land you some extra college money, including scholarships for gender, ethnicity, creativity, community service, military service. While some of the most common ones are scholarships for college freshmen, you can still find more unique options like scholarships for single moms or for being left-handed. Keep digging and you’re bound to find something that works for you.


Unlike the other forms of financial aid, loans are not earned through merit, need, or work ethic. And they certainly aren’t “free money” for your education. A loan is money that you borrow to pay for your college. Loans will need to be paid back with interest, in most cases, starting 6 months after you graduate. You are still responsible to pay for your balance even if you don’t complete your degree.

You can get a loan for school from the government, a bank, or other private institutions. Before you sign or commit to anything, it is important to examine all the terms and agreements to make sure you can hold up your end of the deal. While getting a student loan might be your only option to pay for college, remember that signing the deal binds you to a legal contract.

Types of Federal Loans

Many potential students opt for federal loans because they offer some benefits private loans may not like a fixed interest rate and flexible repayment plans.

There are 4 types of Federal Aid Loans:

  • Direct Subsidized Loans: offered to undergraduate students who demonstrate financial need
  • Direct Unsubsidized Loans: offered to undergraduate, graduate, and professional degree-seeking students, but not based on financial need
  • Direct PLUS Loans: offered to graduate/professional degree seeking students or to parents with dependent children who are undergraduate students. Like Direct Unsubsidized loans, eligibility is not based on financial need.
  • Direct Consolidation Loans: these are designed to help you streamline all of your loans into one loan, managed by one loan servicer

It is important to note that the stipulations (like how much you can borrow and how to pay back) on each kind of loan will be different. You will want to read and research about your specific loan before you get started.

In order to apply for a Federal Loan (or any federal financial aid) the first step is to fill out the Free Application for Federal Student Aid (FAFSA®) form.

Read on to see more about how to apply for Financial Aid.

How Do I Apply for Financial Aid?

To apply for Federal Aid:

Step 1:

Fill out the Free Application for Federal Student Aid (FAFSA®) form. Make sure to check the dates to ensure you get your application in on time. Securing financial aid takes time, so plan in advance!

Step 2:

Wait for your award letter, which will list what you are eligible for.

You will then work with your school counselor or college to determine what your next steps will be. If your award letter shows that you are eligible for a work-study program, that doesn’t mean you’ve been placed in one. It is your responsibility to find a work-study program that works for you.

Note that you must fill out the FAFSA every year you desire financial aid. In addition, if you are looking at private colleges, you might need to fill out an additional form called the College Scholarship Service Profile. Around 250 private colleges also require this form.

Financial Aid FAQs:

Q: Do you have to pay back your financial aid?

Whether or not you have to pay back your financial aid comes down to what type of aid you received. If you earned a scholarship or grant, or participated in a work-study program, you will not have to pay back your financial aid. That’s why applying for as many scholarships or grants as you can will not only help you while you’re in college but also after you graduate. Even if you need to apply for student loans to augment your scholarships, it will cut down the amount you will have to borrow.

In contrast, you will have to pay back student loans, and most times with interest. Most loans give you a 6-month grace period after you graduate before you have to start making payments. Hopefully, in that grace period, you can find a job and earn some income, so making your loan payments won’t be too stressful. Note that if you drop out of school or don’t take enough credits at a time, you will be at risk to start paying back your loans even earlier.

For more information on paying back your federal student loans, check out the U.S. Department of Education’s website.

Q: Are there any Loan Forgiveness programs available to me?

When looking into Loan Forgiveness, there are three common terms you might see: forgiveness, cancellation, and discharge. Forgiveness and cancellation virtually mean the same thing: that you won’t have to repay your student loans due to extenuating circumstances. Discharge, however, refers to a ‘discharge’ from the loan program because your school closed or you endured some type of permanent disability.

According to the U.S. Department of Education, the types of forgiveness, cancellation, or discharge are:

  • Public Service Loan Forgiveness
  • Teacher Loan Forgiveness
  • Perkins Loan Cancellation
  • Death Discharge
  • Total and Permanent Disability Discharge
  • Death Discharge
  • Bankruptcy Discharge
  • Closed School Discharge
  • False Certification Discharge
  • Unpaid Refund Discharge

If you think you might qualify for any of these, contact your loan servicer!

Q: In addition to scholarships and loans, how can I keep the cost of college down?

One way to keep the cost of college down is to look at attending an in-state college. Utilizing in-state tuition would save you thousands of dollars per semester, which adds up over a 4-year period. Another option would be to live on-campus and pursue a job like a Resident Advisor. Typically, RAs get discounts on room and board, which would allow you to allocate more money towards your tuition. Other options could be to start off at a community college, buy used textbooks, apply for unique scholarships and grants (check your in-state scholarships, too!), or apply to accelerated programs.

In addition, some schools offer flat-rate tuitions per semester, which allows you to take as many courses as you can handle for one set price. Other programs offer fixed-rate tuitions, meaning that your tuition will not rise from induction to graduation.

By combining several of these methods, you can save thousands of dollars on your college education.

Q: Where do I start to find scholarships and grants?

Your first step should be to fill out the FAFSA form. That will let you know of any federal grants or work-study programs you are eligible for. Next, if you’re still in high school, it’s important to speak with your guidance counselor because they are more aware of the options that are out there for you. Check with local businesses or your employer and see what is out there locally. Many times, you will find scholarships from local organizations, like the Rotary Club for example. Typically, you can write an essay on a given topic and apply for the free scholarship. Outside of a little old-school door-to-door approach, you can also utilize online tools to help you find scholarship options you may otherwise not be able to find.

If you are looking to apply for state grants, visit the U.S. Department of Education’s state tool here.

If you are looking to apply for state scholarships, check out the U.S. Department of Labor’s tool here.

Q: Are there GPA requirements to keep scholarships?

Typically, yes there are. These requirements will vary from school to school, but it is important to remember that you could be in jeopardy of losing your scholarship if you don’t maintain your given GPA.

Q: When is the deadline to apply for financial aid?

The deadline for each type (loan, scholarship, grant) or granting-institution (federal government, institution, private organization/foundation, etc) will all vary. Check the details of each option to see when you need to get your application submitted. Utilize your calendar to keep track.

Q: What is the difference between subsidized and unsubsidized loans?

When you borrow money for school from the federal government, you either get a Subsidized loan or an Unsubsidized loan. The main difference is that the federal government pays the interest on a subsidized loan while you’re in school, but interest starts accruing on unsubsidized loans as soon as they are dispersed.

For example, if you receive a subsidized loan for $20,000, when you graduate, your loan amount is still $20,000. That is because the government paid the interest on that loan while you were in school.

Q: Are there any financial aid opportunities for international students?

If you are an international student and you have a student visa, you could be eligible to apply for two government-funded scholarship programs: Fullbright and EducationUSA.

According to the Bureau of Educational and Cultural Affairs, the Fulbright Program “offers grants to study, teach, and conduct research for U.S. citizens to go abroad and for non-U.S. citizens to come to the United States.”

EducationUSA is branch in the Office of Global Educational Programs that helps international students with information like financing a U.S. education, navigating the admissions process, understanding the student visa process, and preparing for departure to the United States.

Q: What is the difference between a scholarship and a grant?

While a lot of people use the words “scholarship” and “grant” interchangeably, they do not mean the same thing. The main difference between scholarship and grant is that scholarships are merit-based (grades, sports, activities) and grants are need-based (financial).

Q: What is the difference between a grant and a student loan?

The basic difference between grants and student loans is that you don’t have to pay back a grant, but you do have to pay back a student loan.

Q: What is the difference between external scholarships and institution-based scholarships?

The main difference between external scholarships and institution-based scholarships is that external scholarships will come from businesses, organizations, foundations, or generous people, while institution-based scholarships can come directly from the school you are attending. Schools may receive donations to divvy up in the form of scholarships or departments might have special scholarships to award students entering their unique programs. If you’re looking into scholarships available at your institution, check with the department chair or even a quick peruse of the website could reveal the options. If you’re looking for scholarships outside of your school, take a good look at the US Department of Labor’s free scholarship tool here. There, you’ll be able to search by degree, geographic locations, affiliations, and more to find options that work for you! In addition, you can see the deadlines to make sure you get your applications in on time.

Resources to Recap:

All of this information is helpful—and educates you as you start the process to find options to pay for college or career school. Now it’s time to take the knowledge into action. Let’s recap what we discussed in the article.

Below are a few resources to help you find the right financial aid for your situation:

  • Start by filling out the FAFSA. You can find that through the US Department of Education’s website, here. If eligible, find a work study program.
  • If you’re still in high school, talk to your guidance counselor about available scholarships.
  • Apply for state scholarships and grants. Click here to search for your state grant agency. Or utilize the US Department of Labor’s free scholarship tool here.
  • Talk to your employer or your parent’s employer about available financial aid or reimbursement programs
  • Search for unique scholarships that match your characteristics, like gender, ethnicity, or career goals.
  • Reach out to specific foundations, religious institutions, community organizations, civic groups, or local businesses and determine what they offer.

We know that paying for college is daunting to think about. But, with these resources, you’ll be on the right track. It will take an investment of your time, but in the long run, it will pay off big time. Don’t be afraid to apply for anything and everything. You never know what you will get, so don’t talk yourself out of something. You might get a few “NOs” but if you keep applying, you’re bound to get some money to help you pay for your college or career school.