What This Post Is About + Key Takeaways:
- This post explains what financial aid is, how it works, the different types of aid available, and the pros and cons of financial assistance for college students.
- To help families ensure a successful financial aid experience, this post also includes step-by-step instructions on how to apply for financial aid.
- Finally, the post concludes with expert tips on making the most of financial aid—from the initial submission starting October 1 through weighing the different offers you may receive.
In addition to navigating the college admissions cycle, students and families need to prepare for the cost of college and understand the financial aid process. Applying for financial aid is a multi-step process, and the financial aspect of college life can be significant. So, it’s worth learning as much as you can about different financial aid programs.
Before we discuss the application process, let’s first define what financial aid is, how it works, as well as the pros and cons of getting financial assistance for college.
What Is Financial Aid?
Financial aid is funding that undergraduate students can receive from various sources to help pay college expenses, whether they attend public or private colleges. Some of this funding does not require repayment, but student loans do. You must apply for financial aid to find out if you qualify for assistance.
Financial aid doesn’t just cover tuition and fees, it can also help pay for housing, food, transportation, books, and supplies, among other expenses. However, many families will still have to meet some of the expenses out of pocket, so it can be helpful to have a discussion about college costs and budgeting.
To be eligible for federal financial aid, you must be a U.S. citizen or eligible noncitizen who is enrolled in an eligible academic program and can demonstrate financial need. Undergraduate students seeking financial aid from other sources may have to meet different eligibility requirements.
How Does Financial Aid Work?
Students typically must fill out an application to qualify for aid. Need-based award applications generally request information about the family’s financial situation, including job status, tax payments, and financial assets. For merit-based awards, students generally answer questions about their academic achievements and accomplishments outside of school.
Each college you apply to will send a financial aid award letter that provides details on the amounts and types of financial aid you qualify for at that school. You can choose which sources of aid to accept or reject.
Types of Financial Aid
Traditional financial aid comes in many forms, and undergraduate students can be awarded one or more. Financial aid includes student loans, work-study programs, scholarships, and need-based grants.
- A student loan allows you to borrow the money to pay for college, but you must pay it back with interest.
- A work-study program is a part-time job that helps you pay your college expenses. Jobs can be on or off campus, but the work is often related to your course of study.
- Scholarships are gifts offered by alumni groups, nonprofits, and private organizations and do not need to be repaid. They are often based on academic achievement but are sometimes awarded based on other factors, including financial need.
- Grants are another source of free money for college. You only need to repay it under certain circumstances.
What Are the Pros and Cons of College Financial Aid?
It may seem like there are no disadvantages to accepting financial aid, but student loans especially have both pros and cons. You should give careful consideration to accepting any student loan.
Pros:
- Credit checks are not required to qualify.
- Loans may allow you to attend what would otherwise be a cost-prohibitive school.
- Federal student loans have a fixed rate, meaning it will never increase.
- If you qualify for a subsidized loan, your interest will be paid by the federal government while you’re still in school.
- You can choose a repayment plan to fit your needs.
Cons:
- Student loan payments can take a long time to pay off.
- The amount you can borrow is capped, so you likely will have to find other sources of financial aid.
- You may not qualify for a subsidized loan.
- Defaulting may have serious consequences.
How to Apply for Financial Aid
The FAFSA form is your first step toward being awarded need-based aid. It can be daunting to fill out, but these steps can make the process go more smoothly for you.
1. Gather the Necessary Documents
You can usually fill out the FAFSA without referring to any documents, but FAFSA recommends you have these on hand just in case:
- Tax returns
- Records of child support that you’ve received
- Current balances of savings and checking accounts
- Current amount of cash if it’s more than $1,000
- The value and any debt owed on non-retirement investments, businesses, and farms
2. Fill Out the FAFSA ASAP
The Free Application for Federal Student Aid (FAFSA) is one of the first and most important components of the financial aid process. The FAFSA opens on October 1, and it’s generally beneficial to fill out and submit the form as soon as possible in order to maximize the amount of aid you will be eligible for. However, international students are not usually eligible for U.S. federal aid and should look at other sources.
3. Review the FAFSA Submission Summary
Once your FAFSA form is submitted and processed, you can view your FAFSA Submission Summary in your StudentAid.gov account. Be sure to review the Summary to make sure the information you reported is correct, because it will be used to determine your eligibility for federal, and possibly non-federal, financial aid.
4. Respond to the Aid Offer
When your school sends you a financial aid offer, you will need to decide which one you want. FAFSA recommends first accepting the funds you don’t have to pay back, such as scholarships and grants, followed by earned money and borrowed money.
5. Receive the Aid
Once you accept an offer, you will receive the funds. Depending on the type of aid, the money will either be applied as payments to the school to cover tuition and fees, or you will receive the funds directly, such as in a work-study program.
Even if you’re awarded financial aid through the FAFSA, you may still need additional assistance. Fortunately, there are numerous non-traditional ways to pay for college, including private loans, institutional and state grants, student sponsorships, and crowdfunding.
Tips for Getting the Most Out of Financial Aid
For a successful financial aid experience, it’s important to follow these tips:
- Submit the FAFSA as early as possible — October 1 is the earliest you can file. Some federal aid is awarded first-come, first-served, so timing is everything.
- Don’t assume you won’t be eligible for financial aid and decide not to apply. In all likelihood, you are eligible.
- Take advantage of the IRS Data Retrieval Tool, which transfers federal tax return information directly onto the FAFSA form, so you can reduce filing time and error rates.
- Review the out-of-pocket costs at each school that awards you financial aid. That’s more important than the size of the aid package you are offered.
- Don’t be afraid to appeal. The FAFSA requires tax information from two years prior. For example, the 2026-27 form will ask for income and taxes for 2024. If financial circumstances have changed for the worse since then, you can appeal to the college for more aid.
- Take advantage of the net price calculator. Many families understand that they won’t be expected to pay the sticker price for tuition, but they might be unsure about how much they will actually need to pay. To help shed some light on this, all colleges are required to include a Net Price Calculator on their websites, which students can use to estimate how much they will be expected to pay based on their unique financial circumstances and background. After filling out a few questions, the Net Price Calculator generates an estimate of how much a student will likely need to pay, based on their Expected Family Contribution (EFC), which their FAFSA application determines.
- Understand what meeting “demonstrated financial need” means. Demonstrated financial need is the gap between the total cost of a college’s tuition and the amount your family is calculated to be able to pay. Out of the over 3,000 colleges in the United States, very few are able to guarantee they will be able to meet every student’s full financial needs. In fact, it’s not uncommon for colleges to only be able to meet around 40% of a student’s demonstrated need, even at top-tier universities. Even when schools do say they meet 100% of demonstrated financial need, some of these colleges may achieve this via loans, which ultimately need to be repaid.
- Weigh your financial aid packages. It’s important for incoming undergraduate students to consider every component of each financial aid package they receive instead of just focusing on a single number. If financial aid is an important consideration during your application process, keep your options open when it comes to researching universities and building your balanced college list.
- Do your research about which schools are likely to be able to provide substantial financial aid, as well as institutions where you may be eligible to receive aid based on your academic performance. Keep an open mind throughout the application process so you can choose the institution that best fits both your academic and financial needs.
Learning as much as you can about the financial aid process can help you feel less overwhelmed and more prepared. For expert help with navigating the financial aid application process and college admissions in general, schedule an Initial Consultation with one of the experts on our team.
Get Started
Editor’s Note: This post was originally published in July 2023 and has been updated for accuracy and comprehensiveness.
