Which Type of Financial Aid Should You Accept First?

Abigail Eun
Abigail Eun

Abigail Eun is a freelance writer and personal finance expert. Through diligent research and continuous learning, she has honed her knowledge in budgeting, saving, investing, and debt management. Abigail is passionate about helping people get their finances in order. She believes that everyone should have access to the information they need to make sound financial decisions. Her goal is to provide clear and concise information that is easy to understand.

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September 28, 2022

Now that you’ve been accepted into college, it’s time to figure out how you are going to pay for your education. As you sift through your financial aid packages, it may be confusing to differentiate between the different types of financial aid you were offered. 

In this article, we’ll cover everything you need to know about the different types of financial aid and how you should go about accepting your financial aid package. 

The 4 Types of Financial Aid

There are four key types of financial aid: scholarships, grants, work-study, and loans. 


Scholarships are a form of financial aid that is awarded based on academic merit or other achievements. They do not need to be paid back (yay!). 

Scholarships are a popular form of financial aid. In fact, 58% of families paid for some amount of their college tuition with scholarships in 2020. 

Scholarships come in all shapes and sizes. Depending on the organization that is offering the scholarship, scholarships can range from $100 to the entirety of your four-year tuition. 

Usually, you have to apply for scholarships by providing general information about yourself, writing an essay to a prompt, and demonstrating why you are the best candidate for the scholarship. However, there are also scholarships that you can apply to with a single click of a button or through other creative means. 

Where Do Scholarships Come From?

Scholarships come from a variety of sources, including state governments, private organizations, non-profit organizations, academic institutions, and more. 

What Can I Use Scholarships For?

This depends on the type of scholarship you receive. Some scholarships require students to use the money on specific expenses, such as textbooks and school supplies, tuition, or university housing costs. Other scholarships are more flexible and allow the student to use the money on an educational expense they deem fit. 

How Do I Find Scholarships?

There are a variety of ways you can find and apply for scholarships. You can:

  1. Reach out to your high school and/or college’s financial aid office and ask for assistance in finding scholarships. 
  2. Use scholarship search engines like Bold, Sallie Mae’s Scholarship Search, or Chegg.
  3. Find organizations that specialize in your academic field of study. For example, if you are on a pre-dental track, find dental organizations and see if they offer any scholarships


Like scholarships, grants do not need to be paid back. However, grants are only issued based on financial need, meaning you must meet a specified financial threshold to be an eligible recipient. 

Most likely, federal grants, which are offered by the federal government, will be applied to your financial aid package. Non-federal grants are very similar in nature to scholarships, so this article will focus on the different types of federal grants.

What Types of Federal Grants Are There?

There are four types of federal grants:

  1. Federal Pell Grants
  2. Federal Supplemental Educational Opportunity Grants (FSEOG)
  3. Iran and Afghanistan Service Grants
  4. Teacher Education Assistance for College and Higher Education (TEACH) Grants


Work-study is a federal program that allows undergraduate and graduate students to work on-campus and earn money to pay for their educational expenses. Any money earned from the federal work-study program does not need to be paid back or used towards tuition – the student can use the money how they deem fit. 

Who Is Eligible for Work-Study?

To be eligible for work-study, you must meet the following requirements:

  • You must be enrolled as a full-time student at an accredited university. 
  • You must have submitted your Free Application for Federal Student Aid for the school year.
  • You must demonstrate financial need. 


There are two main types of loans: federal student loans and private student loans. Because loans are borrowed money, they must be paid back with interest. 

Accepting loans is a large responsibility – you’ll want to know exactly what you are getting into before you take on any debt. 

Federal Student Loans

Federal loans are a type of loan that is offered by the federal government. Generally, federal student loans are the best option for student borrowers because of their varied repayment plans, strong borrower protection, flexible eligibility requirements, and potential for federal loan forgiveness.

All federal student loans have a fixed interest rate that is set by Congress, meaning the interest rate you receive when you originate the loan will remain the same throughout the life of the loan. 

Most students are offered a mix of unsubsidized and subsidized Federal Direct Loans. 

Unsubsidized LoansSubsidized Loans
Offered to undergraduate and graduate students with no financial requirements. Only offered to undergraduates who demonstrate financial need.
Accrue interest during the entire life of the loan, whether it is during the school year, grace period, or any deferment period. Do not accrue interest if the student is enrolled at least half-time during the school period, during the grace period (six months after you graduate), and during any period of loan deferment. 

Between unsubsidized and subsidized loans, subsidized loans are clearly the winner. However, you cannot pick and choose between these loans – you must meet a financial requirement to be eligible for subsidized loans. 

Private Student Loans

Private student loans are offered by private entities like banks, financial institutions, and other private companies. Private student loan lenders are autonomous, meaning they set interest rates, repayment plans, and borrower protections as they please. 

If you are a first-time borrower, it may be difficult to receive a private student loan that has a fair interest rate, or even receive a private student loan at all. You will most likely need to add a cosigner that has a strong credit history to your loan to receive better terms. 

Generally, experts recommend that you accept federal loans before private loans because federal loans tend to have better interest rates, repayment terms, and borrower protection plans for the borrower. 

Accept Financial Aid in This Order

If there is one thing to take away from this article, it is FEB — Free, Earned, Borrowed.

You’ll want to accept financial aid in this order, starting with any free money, then earned money, and then borrowed money. Accepting aid this way will help you minimize the amount of debt you incur. 

Free Money: Scholarships and Grants

Scholarships and grants are essentially free money. They do not need to be paid back, so feel free to take as much as you can get. Any federal grants that you are eligible for will show up on your financial aid package, so you can accept them through your account portal. 

On the other hand, you will have to apply for a majority of scholarships, so be sure to do that. 

Earned Money: Work-Study

Next, you’ll want to accept any work-study that is offered on your financial aid award. While work-study money is earned and is not free, work-study still lowers the amount of money that you will need to borrow. 

Borrowed Money

Borrowing money is a large responsibility, given that the amount you owe can spike immensely with interest accrual. You’ll want to accept any borrowed money in the following order so that you can graduate with the least amount of debt. 

#1: Federal Subsidized Loans

Federal subsidized loans do not accrue any interest while you are enrolled at least half-time in school, during your grace period, as well as during loan deferment periods. Because interest does not capitalize on these loans, federal subsidized loans will be your cheapest loan option.

#2: Federal Unsubsidized Loans

Federal unsubsidized loans accrue interest for the entire life of the loan. However, because the loans are offered by the federal government, they come with a myriad of repayment options, borrower protection plans, potential loan forgiveness, and deferment plans. 

#3: Private Student Loans

Private student loans should be accepted last. While you may be able to receive a more competitive interest rate if borrowing with a cosigner, private student loans have more limited repayment options and are not eligible for loan forgiveness. 

Closing Thoughts From the Nest

As you navigate through your financial aid packages, remember to accept your financial aid in the following order: FEB (Free, Earned, Borrowed). It is a helpful guide for accepting financial aid to take on the least amount of debt possible. 

If you are still exploring private student loan options, consider using Sparrow. We offer a quick, free application that allows you to see which student loans you qualify for across 15+ private lenders. 

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