Colleges and universities award students financial aid packages to help cover the cost of attendance. The package is typically made up of combination of aid types. Some aid types are better than others.
There are two broad categories for financial aid: self-help and gift. Self-help aid is money that has to be earned through work-study or a loan that must be repaid. Grant aid is money that doesn’t have to be paid back and includes scholarships.
There are also a variety of sources for financial aid including the federal government, state government, private organizations, the college the student is attending, and the military. The largest single source is the federal government. However, at private institutions, the school itself will often be the biggest provider of financial aid.
College Grant Aid
Scholarships: These are awards that you usually apply for and meet some specific criteria for qualification. Often, private scholarships are only awarded for one year where institutional scholarships are generally renewable for four years. More on scholarships.
Grants: This is money that you don’t have to pay back. Generally, you don’t apply for grants, you are automatically considered for grants as part of the financial aid application. The most common grants are Pell Grants awarded by the Federal Government. Students may also be awarded Federal Supplemental Education Opportunity Grants through their school’s financial aid program. Both are need-based programs. However, some states award grants to students without regard to need. Also private colleges often award non-need based grants to students.
College Self-Help Aid
Work-Study: Work-study is a federal program that provides colleges money to pay students to work campus jobs to help pay for tuition. Work-study is awarded based on financial need.
Direct Loans: These are federal loans awarded to students through the college. Depending on financial need, they can be subsidized or unsubsidized loans. The federal government pays the interest rate while the student is attending college for subsidized loans. Virtually everyone is eligible for unsubsidized loans which have lower interest rates than private loans. These loans have a maximum value of $5,500 to $7,500 per year for undergraduates.
PLUS Loans: These are federal loans that parents may take out to pay the cost of college attendance not covered by the student’s financial package. That means that depending on the cost of the college, PLUS loans can be very large.
Private Loans: Private loans are basically not a good idea. If you are considering a private loan to attend college, you should find another college. You can see a comparison of private loans and federal loans here.