Navigating College Costs: Understanding Financial Aid vs. Student Loans

Paying for college can be a significant undertaking, whether you are a first-time student or pursuing an advanced degree. Understanding the different types of financial aid available is critical to making informed decisions and managing college expenses effectively. Financial aid helps students and their families cover higher education expenses, such as tuition and fees, housing and food, books and other coursework supplies, and transportation.

Understanding Financial Aid

Financial aid is any monetary assistance from a third-party source to help students cover their educational expenses. Financial aid can be broken down into a few options such as grants, scholarships, student loans, education loans, work-study, and fellowships.

Types of Financial Aid

There are primarily two types of financial aid:

Need-based: This type of aid is determined by a family's ability to pay for college, as calculated by the Free Application for Federal Student Aid (FAFSA).
Merit-based: This aid is not based on financial need but is awarded to students for specific talents, athletic abilities, or academic achievements.

College students are potentially eligible for federal, state and/or institutional aid. Institutional aid is financial assistance provided by the college and varies by school, since each college uses its own policies and formulas to determine how to award its financial aid.

Grants: Free Money for College

Grants are a form of financial aid that provides funds to help pay for college, career school, or trade school. Grants are usually awarded to students based on their financial need. Grants and scholarships are sometimes called gift aid because they generally don't need to be repaid (except under certain circumstances). As mentioned above, college grants are given to students who have a financial-need, with funds coming mostly from federal and state government. Some of the major, government-funded grants include the Teach Education Assistance for College and Higher Education Grants (TEACH), Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), and Iraq and Afghanistan Service Grants.

Federal Pell Grant: This need-based grant is usually awarded to undergraduates only. The amount available to any qualifying student changes from year to year. You can receive Pell Grant funding for the equivalent of 12 semesters, or roughly six years. The maximum amount of Federal Pell Grant funds you can receive over your lifetime is limited by federal law to be the equivalent of about 12 school terms (roughly six years). Since the amount of a scheduled Pell Grant award you can receive each award year is typically equal to 100%, the six-year equivalent is 600%. Department of Education tracks your Lifetime Eligibility Used (LEU) by adding together the percentages of your Pell Grant scheduled awards that you received for each award year. You’ll receive a notice if you’re getting close to your limit. Beginning with the 2024-2025 award year, the Special Rule for Federal Pell Grants has replaced the Iraq and Afghanistan Service Grant (IASG) and Children of Fallen Heroes (CFH) grant.
Federal Supplemental Educational Opportunity Grant (FSEOG): This grant is administered directly by your college's financial aid office, but not all colleges participate.
Teacher Education Assistance for College and Higher Education (TEACH) Grant: Students who plan to pursue a career in teaching in a high-need field may be eligible for this grant. This grant is different than the others in that you'll have to agree to complete a teaching service obligation to receive it.

Scholarships: Recognizing Merit and Achievement

Scholarships are another great free source of money for college that are offered by many companies, schools, non-profits, and other organizations. A scholarship is a monetary gift that can help you pay for college, career school, or trade school. Unlike student loans, you don’t need to pay back a scholarship. Scholarships can be merit based, specific to particular groups of people, or based on financial need. They can be offered by schools, individuals, employers, private companies, nonprofits, professional and social organizations, and community and religious groups. The main difference between a scholarship and a grant is that they’re based on more than just financial-need. The options are plentiful, so it’s important to do your research to see what might be applicable to you. When applying, the requirements and deadline depend on the specific scholarship. Many require an essay to be written, but it really can vary by type of scholarship.

Work-Study Programs: Earning While Learning

Federal Work-Study provides part-time jobs to students with financial need. Students can gain valuable work experience while earning money to help pay for college, career school, or trade school expenses. To find out if your school participates in the Federal Work-Study Program, check with the financial aid office. If they do, submit your Free Application for Federal Student Aid (FAFSA®) form as early as possible to see if you’re eligible. This federal program provides part-time work, typically on campus, to help students cover college-related expenses. Not all students qualify for work-study. Students need to qualify through the FAFSA and demonstrate financial need. Work-study students earn at least $7.25 per hour, the federal minimum wage.

Fellowships

Fellowships are usually offered to graduate students and are available as financial aid for international students.

Student Loans: Borrowing for the Future

Loans are the more commonly-used type of financial assistance. The difference between loans and a grant or scholarship is that they’re not “free” and need to be repaid, with interest. Education loans must be paid back, typically plus interest and possibly added fees.

Federal Student Loans: A Preferred Option

Federal loans are more desirable because they have lower interest rates, allow for flexibility with payments, and provide other benefits such as loan consolidation and deferred payments. Federal student loans aren’t due until you graduate, leave school, or change your status to less than half-time. For federal student loans, income-driven repayment plans set your monthly payment based on your income and family size. You can fill out an application to be on this kind of plan if you qualify for federal student loans. Federal student loans have a fixed interest rate, meaning the rate will not change for the life of the loan. Interest rates vary depending on the loan type and the date the loan was paid out.

Federal Direct Loans: There are two types of loans for undergraduate students: Federal Direct Subsidized and Federal Direct Unsubsidized. To apply for a federal student loan, you’ll need to complete and submit the FAFSA.
- Federal Direct Subsidized Loans: Subsidized federal loans are available to students who have a financial-need for the assistance, which means the government will pay the interest while you’re in school and for a grace period after graduation. The difference between the subsidized and unsubsidized loan is that the government is paying the interest on the subsidized loan while you're in school (at least half-time enrollment) and during the first six months after you leave school (known as a grace period). A Direct Subsidized Loan is a type of federal student loan that’s available to undergraduate students with financial need.
- Federal Direct Unsubsidized Loans: For Federal Direct Unsubsidized Loans, financial need is not a requirement, but you're responsible for the interest throughout the entire life of the loan. A Direct Unsubsidized Loan is a type of federal student loan that’s available to undergraduate, graduate, and professional students. Unlike a Direct Subsidized Loan, it’s not based on financial need. Interest accrues (adds up) on Direct Unsubsidized Loans during all periods-even when you’re in school.
Federal Direct PLUS Loans: These loans are available to eligible parents with students attending college, graduate students and professional students. There are also PLUS and Perkins loans. PLUS loans are offered to parents of dependent undergraduate students, as well as graduate or professional students. A PLUS loan, also known as a Direct PLUS Loan, is a type of federal student loan that’s available for eligible graduate or professional students and for parents of dependent undergraduate students.

Private Student Loans: An Alternative Option

Private loans, the more common type of student loan, are provided by banks, credit unions, and other private organizations. Private student loans are credit-based loans offered by private lenders who will check your creditworthiness before approving a loan. A private student loan is a loan offered by a private lender, such as a bank, credit union, state agency, or school. These loans aren’t funded by the federal government, and the loan terms and conditions are set by the lender.

Loan Forgiveness

There are various reasons for student loan forgiveness (also called cancellation or discharge, depending on the reason), and it’s only possible with federal loans.

Navigating the Financial Aid Process

Applying for Financial Aid

The first step is to file the Free Application for Federal Student Aid, known as the FAFSA. After two years of delayed releases, families can once again begin filling out the form Oct. 1 for the 2026-2027 cycle. The deadline for filing the FAFSA is June 30 of each academic year. For instance, the 2026-2027 FAFSA is due June 2027. But that deadline is for federal financial aid only. Many schools and colleges that use the FAFSA to determine aid set earlier deadlines.

Some schools - mostly private colleges - use a supplemental form called the CSS Profile to determine how to give out their own funds. This form is more detailed than the FAFSA. For instance, it requests information about medical or additional educational expenses. The initial submission fee for the CSS Profile is $25; each additional report is $16. But fee waivers are available. Sometimes, a student must complete additional applications to be considered for scholarships or private aid. For federal loans, the first step is submitting the FAFSA. Once reviewed, the data is used to award financial assistance depending on the financial-need. For private loans, the process can vary by lender. Once reviewed, the data is used to award financial assistance depending on the financial-need.

Understanding Financial Aid Deadlines

It's important to meet college financial aid deadlines, which vary by institution. Lindeman recommends making a spreadsheet or list of each college of interest - noting individual financial aid requirements and deadlines.

Financial Aid for International Students

Financial aid is a broad word to describe money from a third-party source that’s provided to a student for their education. Financial aid for international students includes scholarships, grants, and education loans. These can be found through nonfederal sources, like your school, home country, or independent organization.

Some schools offer special aid programs for international students, like institutional student loans, fellowships, or scholarships. Your home country might have financial aid awards for its citizens that can help you get your education abroad. You can also find financial aid for international students in the USA. also offer financial aid for international students. For example, the Institute of International Education offers a database of grants, scholarships, and fellowship awards.

When it comes to student loans for international students, you’ll find them through private loan lenders. Private international education loans might be available through your school or through a private bank or lender.

The International Student Financial Aid Application (ISFAA) is a paper application. The ISFAA asks for the student’s and their parent’s information, and financial details like household income, assets, and expenses. You must also include existing financial aid you’ve received from other sources. If you have a special financial circumstance, you can explain it on the form.

The CSS is provided by the College Board. It’s an online application for nonfederal financial aid, like institutional scholarships and loans. You can find a list of schools that use the CSS in their financial aid process online. International students can fill out the CSS for a $25 fee.

Even if international students are not eligible for federal financial aid, filling out the FAFSA might be helpful. Some non-federal aid programs require all applicants, including international students, to complete a FAFSA as part of the application process.

Tips for Managing Student Loans

Borrow Only What You Need: If you’re considering a private student loan, you want to borrow only what’s needed, so you’re not stuck with more debt than you can handle after graduation.
Budgeting: Budgeting helps you stay in control of your money and avoid missing payments.
Consider Payment Options: When you take out a Sallie Mae® private student loan, you get to choose how you want to handle your payments while in school.
Explore Repayment Plans: The Graduated Repayment Period lets you pay just the interest for 12 months after your grace period, easing the transition into full repayment.
Deferment and Forbearance: Deferment and forbearance let you pause or temporarily lower student loan payments.

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