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Responsible Borrowing

What are the types of financial aid?

Once you have completed the Free Application for Federal Student Aid (FAFSA) and colleges receive the results, various types of financial aid may be combined into a financial aid package offer to you.

For many types of aid, how much you receive will depend on your financial need, and in most cases, the school won't tell you how much aid you qualify for until you've been accepted for enrollment and have completed their financial aid form. However, this is not true for merit-based assistance, that is, for scholarships. Scholarships are usually awarded directly by the sponsoring organization and do not depend on a financial aid package.

Categories of Financial Aid

Merit-based assistance is awarded to students with a particular skill, achievement, talent or characteristic, usually as a scholarship. Most scholarships require separate application from you, often with written essays and letters of recommendation or referrals.

Need-based assistance is provided to students who cannot afford college using only their own or their family's financial resources. The level of need is determined through federal, state and institutional formulas. The most common forms of need-based aid are grants, work-study programs and subsidized student loans, which means the federal government pays the interest on the loan for you while you are in school. You must file the Free Application for Federal Student Aid (FAFSA) to obtain federal and state need-based aid. Your college may require an additional application for institutional aid.

Gift aid is money that does not normally have to be repaid, such as grants and scholarships.

Self-help aid usually requires repayment, such as student and parent loans, however work-study programs are also considered self-help aid.

Tax Credits and Savings reduce the amount of federal taxes the taxpayer owes and could result in a larger tax refund. There are two different opportunities of this type: the American Opportunity Scholarship and the Lifetime Learning tax credit. In addition, there are other tax code provisions that provide incentives for continuing your education.

Specific Types of Financial Aid

  • Scholarships are awarded to students who meet certain criteria. They can be need- or merit-based and they are gift aid, so do not have to be paid back. There are thousands -- and you may qualify for some! We recommend you begin reviewing scholarship opportunities as early as middle school. This will allow you to make sure you have planned how to meet the eligibility requirements by the time you apply.
  • Merit awards can be conditional on financial need or not.
  • Grants are awarded to students based on financial need and they do not need to be paid back.
  • Student employment programs (Work-Study) offer you a way to earn money while you are attending college and may or may not depend on your financial need. Jobs may be at the school or in nearby communities. You are paid an hourly wage set by the school. For more information, contact a financial aid counselor at the college you plan to attend.
  • Loans (to you or your parents) are funds you borrow that you must pay back, usually with interest. Most financial aid packages include some loans.

Arizona State University student Andrew Rigazio had good grades in high school, but he wishes now that he'd been more involved in extracurricular activities. He says he thinks that would have boosted his chances of receiving scholarships. Ultimately, he applied for almost every community scholarship he was eligible for - 21 in all - and didn't receive any.

"When it comes to financial aid, apply early and often," he recommends. "The most work you will usually have to do is get a letter of recommendation or write a short essay. But that work could lead to a one, two or even three thousand dollar scholarship. The reward that you could obtain far outweighs the amount of work necessary. And even if you strike out like I did, you gain a lot of experience in resume building and essay writing and other important skills you may have not obtained another way."

The Student GuideNew window icon

You can download this excellent publication for students and parents published by the U.S. Department of Education. This booklet is a comprehensive guide to federal student aid programs.

Flight school student Max Kahlhamer didn't qualify for any merit-based scholarships. But he used his savings and federal student loans to help pay for his education at UND in Grand Forks. He also received a gift scholarship awarded to students pursuing an aviation career and he receives free room and board in exchange for his work as a resident assistant.

"That's a big help, not paying for room and board," he says. "I can keep costs low."