The cost of college has been going up for many years, making financial aid incredibly important. In fact, to afford college, most students use a combination of financial aid. The term “financial aid,” though, is broad and can refer to many different things. So, what exactly is financial aid? And how does it really work? Let’s get into it.
What Is Financial Aid?
Financial aid is money that you use to pay for college. More specifically, money that doesn’t come from personal savings or parent contributions. This means scholarships, grants, student loans, work-study, and other aid programs. Financial aid typically falls into one of two categories: need-based or merit-based.
Need-Based Financial Aid
Need-based financial aid is money only available to you if you demonstrate financial need. This means your income level is deemed not high enough to contribute to college expenses. Your level of financial need is usually based on the information you provide on the FAFSA. The FAFSA opens every October for the following school year. For example, in October of 2021, the 2022-2023 FAFSA application opened for students. After submitting the FAFSA, you’ll get a financial aid award letter from each school you were accepted to where you can accept or deny aid awards you received.
Examples of need-based aid would be the Pell Grant and Direct Subsidized Loans. Both your grant and Subsidized Loan eligibility are dependent on your financial situation. They are only available to undergraduate students with financial need.
Merit-Based Financial Aid
Merit-based financial aid is awarded based on achievements, such as academic or athletic achievements. Since these are not based on financial need, more people tend to qualify. When it comes to merit-based aid, each award will have its own application process. So, you’ll have to do your research online to find them.
The most popular example of merit-based aid would be scholarships. Scholarships usually have their own individual requirements. To find merit-based scholarships, we recommend utilizing search engines dedicated to helping you find aid like FastWeb and Niche.
What Does Financial Aid Cover?
Your financial aid awards can cover a range of things depending on the financial aid you receive. You can use financial aid to pay for tuition, books, room and board, and other college expenses. There are times, however, when the financial aid you receive comes with conditions. For instance, they may tell you to only use your grant money for room and board. However, as long as you are using the money for college costs and any other related expenses, you’re typically in the clear.
How Your Financial Aid Is Determined
Depending on the type of aid, there are different ways the amount you receive is determined
Need-Based Aid From Your University
When you fill out the FAFSA, you get to choose a list of schools to send it to. Individual schools will use the information you provide on the FAFSA to determine how much money you get. They’ll look at things like your annual income or your family’s income, and based on that, they’ll determine how much they think you/your family can provide. They’ll then offer financial aid to try to make up the difference.
Merit-Based Aid
Merit-based aid is usually scholarships, but can also be grants and other programs as well. The amount of money that you can receive will depend on each award and is set by the aid provider. For instance, you may find a scholarship for $5,000 and then find another one for $500. It really just depends on the amount that they set.
How Much Financial Aid Does the Average Student Receive?
Research done by the College Board shows that on average, full-time undergraduate students receive about $14,800 in financial aid in one year. Meanwhile, full-time graduate students receive around $26,920 for one year.
Does Financial Aid Have To Be Paid Back?
It depends on the type of financial aid. Loans have to be paid back, usually with interest. Your loan servicer or provider will work with you to provide a timeline on which you’ll pay back the money. Scholarships and grants are seen as free money because you typically don’t have to pay them back. Grants may have to be paid back under certain circumstances. But if that happens, your school will let you know and help you set up a payment plan. Finally, work-study and other similar programs don’t have to be paid back. Since it’s money that you earned, it’s yours.
Final Thoughts from the Nest
Financial aid is an extremely important part of the process of paying for college. So, it’s important that you understand it. Hopefully, with all this information, you’re in a better position than you were before.
Sparrow is a great resource to help you with financial aid. More specifically, with private student loans. When it comes to private student loans, you usually have to research and apply to each one separately. But with us, you only have to fill out one application to see what rates you can qualify for with 15+ lenders. To get started, sign up.