How Financial Aid Works — One Step at a Time

Applying for and receiving financial aid can seem overwhelming at first, but by following a few steps, you can ensure you receive as much gift aid, such as grants and scholarships, as possible before considering any type of student loan.

Step One: FAFSA

The financial aid process begins with the Free Application for Federal Student Aid (FAFSA). You and your family should complete the FAFSA as soon as it becomes available annually if you intend to continue your education after the current academic year ends. You also want to ensure you complete and submit the FAFSA before your college or university's priority deadline. Check with your college or university to find out what their specific deadline is.

Completing the FAFSA is required for all federal aid and many types of state and institutional aid. You may complete the FAFSA online or request a paper FAFSA by calling Federal Student Aid at (800) 433-3243.

Step Two: Student Aid Report

After you submit the FAFSA, you will receive the results through a Student Aid Report (SAR) in approximately two to four weeks. The SAR is a summary of all the information submitted on the FAFSA, and it is sent electronically to any colleges or universities you listed on the FAFSA.

The SAR identifies your Expected Family Contribution (EFC), which colleges and universities use to determine your financial aid eligibility. You and your family will want to review the SAR carefully to make sure the information is correct.

Step Three: Award Letter

After the SAR is sent to you and the colleges or universities you indicated, each school will send you an award letter. This letter explains the various types of financial aid available to you at that college or university for the upcoming academic year. Financial aid can include grants, scholarships and loans.

You and your family will want to review each award letter thoroughly to understand the types of aid offered. You will also want to compare offers carefully as award letters may look different and feature different types of aid. Be sure to compare how the financial aid offerings impact your total cost of attendance at each school instead of simply looking at the amount of financial aid offered. Read any instructions thoroughly, as it may be necessary to sign and return portions of the form by a certain date to accept all or part of the aid offered.

Types of Financial Aid

There are three main types of financial aid:

  • Gift aid — typically grants and scholarships — is money you don't have to pay back. You can apply for scholarships outside of what is offered by your college or university each year you are in school.
  • Self-help aid is money you earn by working but don't have to pay back. The Federal Work-Study Program is one type of self-help aid and is based on financial need.
  • Student loans, both federal and private, are funds you must pay back with interest. Federal and private student loans are taken out by the student.
    • Direct PLUS Loans are federal loans taken out either by parents for their dependent student's education expenses or by graduate students for their graduate school expenses.
    • Private loans often require a creditworthy cosigner.