Financial Aid: How Does It Work?

In 2015 more than $185 billion in financial aid was available to U.S. college students, according to The College Board. The aid came in many different forms from a variety of different sources. And it was provided to more than 15 million students of all ages, races, income levels, and fields of study. So if you’re thinking about college, you owe it to yourself to apply for financial aid. It certainly can’t hurt, you most likely qualify for some type of assistance, and it’s not as complicated as it might seem. Below is a very basic overview of the financial aid process to get you started.

First, what is financial aid? Financial aid is money that can help you pay for college. For many students, financial aid makes the college possible altogether. For other students it enables them to attend a college they couldn’t otherwise afford.

Types of financial aid include:

  • Grants and Scholarships: money you don’t have to pay back
  • Work-study Jobs: paid, part-time work, typically in career-related jobs
  • Loans: money you need to pay back, usually after you graduate, often at a low rate of interest
  • Tax Credits: credits that directly reduce the amount of taxes you owe

Sources of financial aid include:

  • United States Government (largest source)
  • State Governments
  • Colleges and Universities
  • Private Organizations
  • Employers

1. Fill Out the FAFSA
To qualify for many types of aid, you’ll need to complete the Free Application for Federal Student Aid or FAFSA. The FAFSA applies to more than just federal aid; many state governments and colleges also use this application as the basis to award their aid.

You can complete this form online at fafsa.gov or download paper forms there. The online form streamlines and simplifies the process, asking only the questions that are relevant to you. You can even import your tax information directly from the IRS website.

You can begin filling out your FAFSA on October 1 of the year prior to enrollment. Since some colleges have FAFSA deadlines before the tax-filing deadline, you should complete your form as early as possible. You can estimate your FAFSA answers based on last year’s taxes then update your answers after you file your taxes for the current year.

Financial aid is available for everyone, not just recent high school graduates. If you are considered a dependent student (for FAFSA purposes), you will need to provide your parents’ financial information. If you are considered an independent student, you do not need to include your parents’ financial information. If you are married, you will need to provide your spouse’s financial information. Your answers to the FAFSA questions will determine whether you are considered a dependent or independent student.

2. Apply for Financial Aid
Once you have completed the FAFSA, you should apply for any and all financial aid that you can. This includes

  • Federal Government. In addition to aid from the Department of Education financial aid programs ($150 billion), the federal government offers tax benefits for education, aid to military and their families, awards for community service, and several other programs.
  • State Government. Even if you’re not eligible for federal aid, you might qualify for aid from your state. For more information, contact the higher education agency in your state.
  • Colleges and Universities. Many colleges and universities offer financial aid from their own funds, or provide flexible and low-interest financing options. Visit the website or contact the financial aid office at the various colleges you are considering. The schools want to help you afford their education.
  • Private Organizations. Many private companies, non-profits, religious groups, communities and professional and social organizations provide scholarships based on more than just financial need. Merit scholarships are awarded for academic achievement, athletic ability, community service, and a host of other criteria.
  • Employers. Many employers offer substantial tax-free education benefits, including tuition reimbursement, to their employees and their families. Don’t forget to check with your employer, or your parents’ employer.

It’s Worth the Effort
Whatever you do, don’t assume you don’t qualify for financial aid. All types of students receive all forms of financial aid by meeting a variety of different criteria. Yes, it will require some research, a lot of forms, and some follow up. And there’s no guarantee you will qualify for any assistance. But it will be worth your effort—because college is worth your effort. College is not only one of the best investments you can make in your career and your life, it is also one of the best investments our country can make in its future. And that’s why so many organizations, including the federal government, are committed to helping you afford it.