Financial Aid Basics: What You Need to Know - NerdWallet
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Financial Aid Basics: What You Need to Know

Financial Aid Basics

If you’re worried about the staggering costs of college, take a deep breath. Every year, the U.S. Department of Education awards nearly $140 billion to help millions of students like you who are wondering whether they will receive financial aid.

To help you learn how to get more financial aid, NerdScholar has prepared a primer. It gives you the tools to break down the application process and make the best decisions.

Filling out your FAFSA

Financial aid is money that will help you pay for college. To apply for aid, always start by completing the Free Application for Federal Student Aid, regardless of your financial situation. Colleges use this application to put together your financial aid package. NerdScholar’s FAFSA Guide can help answer questions you have along the way. Filling out the FAFSA is a simple process as long as you and your parents, if needed, have the necessary documents. Melanie Weaver, director of financial aid at Ohio Northern University, says that “parents and students should gather their most recent tax return and W-2 information, as well as any statements or documentation regarding assets –– checking, savings, stocks, bonds, etc.”

There are two other important factors to consider when thinking about financial aid. First, the Estimated Cost of Attendance describes how much it will cost to attend your school. This total includes tuition, room and board, textbooks and personal expenses. You should make this estimate to help you figure out your individual living expenses while in school.

Next, the Estimated Family Contribution explains how much your family is expected to pay. This estimate is based on taxed and untaxed income, your parents’ jobs, assets, benefits, family size and how many of your siblings are enrolled in college.

Subtract what you and your family will pay from your estimated costs and you’ll get an idea of how much financial aid you need. Discuss these estimates with your parents and financial aid office. Going over these figures will help you understand your financial need and how much aid you should accept to pay for college.

Gift Aid: Financial aid that does NOT need to be paid back

Federal grants. Grants are typically awarded based on need. Federal Pell Grants are usually awarded to undergraduate students. Pell grants are based on a combination of financial need, college costs and enrollment status. “They can be used at any approved school, and the amount can be as much as $5,730 per year,” says David Pardieck, executive director of financial assistance at Bradley University.

Federal Supplemental Educational Opportunity Grants are awarded to undergraduate students with exceptional financial need. The amount of the award is determined by the college’s financial aid office and depends on the student’s financial need and funds available at the university. It is important to note that “not all schools participate,” says Erica Woods-Warrior, director of the peer educator program at the student success center at Old Dominion University. “Check with your school’s financial aid office to find out if the school offers the FSEOG. You can receive between $100 and $4,000 a year.” Pell and FSEOG aid doesn’t need to be repaid.

Specific grants are also available for students who intend to teach in a public or private elementary or secondary school, as well as for students whose parents or guardians were members of the military who died during their service in Iraq or Afghanistan after Sept. 11, 2001.

Work-study. The Federal Work-Study Program is campus-based and provides part-time jobs for students with financial need. Your school will provide work hours based on your award amount, class schedule and academic standing. “Besides earning money, students also gain valuable life skills with a work-study position. They learn how to work with others, whether it is other students or professional staff, and often learn more about working with the public,” says Weaver. Although these programs provide work experience, they also cut into free time and extracurricular activities.

Scholarships. Some states, local governments, colleges, community organizations, private employers and other organizations award scholarships based on academic ability or other factors. Scholarships don’t need to be repaid. The NerdScholar Scholarship Search Tool helps you find the information you need. While there are plenty of scholarships, they are also competitive. Invest time and energy into the application process to avoid leaving any money on the table.

Loans: Financial aid that MUST be paid back

Now, let’s look at other financial aid options. There are two federal student loan programs. The Federal Perkins Loan Program is a campus-based program that provides low-interest loans. The amount of the award depends on the student’s financial need, the amount of other aid the student receives and the availability of funds at the student’s college.

Federal loans. The William D. Ford Federal Direct Loan Program allows students and parents to borrow money at low interest rates directly from the federal government. The program includes Subsidized or Unsubsidized Federal Stafford Loans and Direct PLUS Loans. Subsidized loans are based on financial need and are available only to undergraduate students. The federal government pays the interest on subsidized loans while the borrower is in college and during deferment. Unsubsidized loans are based on the student’s education costs and other aid received. The borrower must pay all accrued interest on unsubsidized loans. The low-interest rate on federal student loans is especially valuable over time. It is important to note that borrowing any money — even at a low interest rate — requires repayment for many years after graduation.

Private loans. Finally, if grants, scholarships and federal loans still leave you with a gap in your college costs, consider private loans. If you take this route, borrow responsibly. Private loans have higher borrowing limits, but they also usually have higher interest rates. Edwin B. Harris, director of enrollment management at Eastern Connecticut State University, always tells students to “exhaust federal loan eligibility before taking on high interest rate private loans.”

More options

States. Your state government may also provide aid. Some states offer scholarships, grants, loans and other aid to state residents.  “It is important to talk with your college counselor to be sure you are applying for everything available,” says Jenny Allen Ryan, director of financial aid at Westminster College. “Some state grants may be portable if you attend college out of state.” To find out more, visit your state’s website as well as the states where you plan to attend college.

Colleges. Colleges also provide aid. Students should contact the financial aid offices at the schools they are considering for more information. Some colleges offer merit scholarships to qualified students who have shown that they can’t afford the school’s full price.


[Article last updated on July 21, 2014]

Melanie Weaver is director of financial aid at Ohio Northern University. She has worked in financial aid for nine years and presented on financial aid topics at the state and national level.

David Pardieck, executive director of financial assistance at Bradley University, has been administrating student financial assistance for nearly four decades. In addition to financial aid administration, he has worked in undergraduate admissions and senior-level enrollment management. Pardieck is also recognized for his consulting work with financial aid, admissions and enrollment management operations at independent colleges and universities across the country.   

Dr. Erica Woods-Warrior is director of the Peer Educator Program at Old Dominion University. She has worked as an assistant professor and administrator in higher education for 14 years at both private and public universities.

Edwin B. Harris is director of enrollment management at Eastern Connecticut State University. He has worked in higher education, and specifically in the admission and financial-aid arenas, for the past 30 years. 

Jenny Allen Ryan currently serves as director of financial aid at Westminster College. She has experience supervising student loans in the business office at Emory University and as director of graduate admissions at Regis University. She received her bachelor’s degree from Ohio State University and her master’s degree from Xavier University.  

 College savings plan image via Shutterstock.

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