What is Financial Aid? - Requirements & Sources

Instructor: Dana Dance-Schissel

Dana teaches social sciences at the college level and English and psychology at the high school level. She has master's degrees in applied, clinical and community psychology.

Financial aid is an important issue to understand when planning for college. This lesson will discuss what students need to qualify and apply for financial aid, as well as the different types of aid that may be available.

Financial Aid Explained

Both parents and students who are thinking about college may feel a lot of stress and worry about how they are going to come up with the money to pay for tuition, room and board, books, supplies, and fees. College isn't cheap, and more and more students are turning to financial aid to fill in the gap between what they can afford and what college costs.

If you or someone you know is thinking about heading to college, take the time to educate yourself about financial aid. With a little research, you may find that the process isn't as confusing as it seems. And there are a lot of great funding options that can make it possible for almost any student to afford a college education.

Financial aid can help students realize their dream of a college degree.
college graduation

The most common types of aid available are scholarships, grants, and loans. Scholarships and grants do not need to be repaid. Loans must be repaid, usually after you have finished your education. The requirements for each type of aid are different, so you will need to do your homework before you apply. Let's take a closer look by following one sample student through the process of applying for financial aid.

Basic Requirements

Jack is a high school senior who has chosen to attend City University next year, where tuition is $30,000 per year. Jack has no money saved and he does not have a job because he has been so focused on his grades. He begins to worry that college is not an option for him due to the cost. Financial aid may be a great option for Jack.

Qualifying for Financial Aid

Despite his lack of savings, Jack still has many options for financial aid. Financial aid comes in two versions: merit based and need-based. Merit-based aid is available to students with high grades or certain skills, talents, or traits. Need-based aid is available to any student who demonstrates financial need. It sounds like Jack may qualify for both merit- and need-based aid, doesn't it?

Applying for Financial Aid

Now that we know that there is money out there to help Jack to pay for college, how does he go about finding it? Some schools automatically consider students for both kinds of aid when they apply.

To consider Jack for merit aid, City University needs to see his official transcripts. Transcripts are a list of all of Jack's high school courses, along with his grades in each course. Some merit-based funding is based on membership in specific organizations, like clubs or musical groups. Each scholarship or grant will have a unique application process, and some may ask you to fill out an application or write an essay.

Need-based aid is figured through financial information the student (and sometimes, the student's family) provides to the school. Most schools collect this information through the Free Application for Federal Student Aid or FAFSA. The FAFSA adds up all the numbers and ultimately shows how much the student can afford to pay for college.

The Free Application for Federal Student Aid can be found online.

Sources of Financial Aid

Now that Jack knows how to apply for aid, he needs to know where the money will be coming from. Let's look at different types of financial aid.

  • Loans

Loans can come from the government, private lenders, or the school itself and they must be repaid, with interest. Interest is a fee charged to borrow the money and is usually a percentage of the total loan amount.

The government frequently subsidizes federal loans, or pays the interest for the student, for a period of time. But unsubsidized loans are also available. Jack's final financial aid package may include a combination of subsidized and unsubsidized loans to help pay for college based on his financial need each year.

  • Grants

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