The Ultimate Guide to Understanding College Financial Aid

Many families are shocked by a college’s sticker price. While the cost of tuition can be overwhelming, financial aid can make higher education more affordable.

Income and savings represent two resources that many families use to pay students’ college expenses, according to the annual Sallie Mae/Ipsos survey, “How America Pays for College.” The 2024 survey found that for a typical family with a college student, scholarships and grants — aid that doesn’t have to be repaid — covered 27% of college costs in 2023-2024, down from 29% in 2022-2023.

Meanwhile, those families reported spending an average of $28,409 on college expenses in 2023-2024, up from $28,026 in 2022-2023, per the Sallie Mae report.

Navigating the financial aid process to help pay for college can be challenging. Here are a few answers to common financial aid questions.

What Is Financial Aid?

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. There are several types of financial aid:

— Grants

— Scholarships

— Federal and private loans

— Work-study

For most students and families, financial aid is “the most confusing part of the college process and I hate that for them,” says Kerr C. Ramsay III, senior vice president for enrollment at High Point University in North Carolina. “But we’re here to help. And we recognize there are going to be questions. Financial aid offices are the professionals. This is what they do for a living, so students shouldn’t hesitate to reach out and ask those questions.”

How Does Financial Aid Work?

Different types of aid are provided through sources such as federal and state agencies, colleges, high schools, foundations and corporations. The amount of aid a student receives depends on federal, state and institutional guidelines.

[See: 12 College Fees That May Surprise You]

The type of aid determines whether it will have to be repaid, and students can accept or reject anything offered.

“We always want students to consider their gift aid first,” says Janet Turner, director of financial aid at the University of Portland in Oregon. “Gift aid is considered money that you do not have to repay. So that’s always important to try to get as much gift aid as you can to help pay for school.”

How Do I Apply for Financial Aid?

The first step is to file the Free Application for Federal Student Aid, known as the FAFSA. This application is used by many state agencies and schools to determine college aid, which is usually based on household income reported on federal income taxes.

The FAFSA is available through the U.S. Department of Education’s Federal Student Aid website, StudentAid.gov. Normally, families can begin filling out the form Oct. 1 for the following academic year. But for the 2025-2026 cycle, after an ongoing overhaul to the application as part of the FAFSA Simplification Act, the form opened November 2024 — the second consecutive year of delay.

The deadline for filing the FAFSA is June 30 of each academic year. For instance, the 2025-2026 FAFSA is due June 2026. 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. Undergraduate students considered an orphan or ward of the court, or with a family adjusted gross annual income of $100,000 or less, can file the form at no cost.

A list of schools that require the CSS Profile can be found on the website for the College Board, the organization that administers and maintains the application.

“The CSS Profile actually gives us additional information about a family that allows us to determine need in a slightly different way and then use that information to determine institutional funds,” says Taryn Anderson, assistant vice president of student financial services at Baylor University in Texas. “So for Baylor and a lot of CSS Profile schools, we still utilize the FAFSA. We add the Profile as a requirement for students and then it allows us to maximize financial aid and use our resources.”

Sometimes, a student must complete additional applications to be considered for scholarships or private aid.

What Are the Different Types of Financial Aid?

There are two types of aid: need-based and merit-based.

Federal need-based aid, for instance, is determined by a family’s ability to pay for college as calculated by the FAFSA.

Merit aid, on the other hand, isn’t based on financial need. It can be awarded by an institution, college or private organization to a student for a specific talent or athletic or academic ability.

[Read: Weighing the Pros and Cons of Working While in College.]

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.

For federal financial aid, there are three types of funds: loans, grants and work-study.

Federal student loans. These are fixed-interest-rate loans from the government. The interest rate for each academic year is set on July 1, and that rate is secured for the life of the loan. The main program for federal student loans is the direct loan program, which allows qualified undergraduate students to borrow direct subsidized or unsubsidized loans up to $31,000 if they’re a dependent. An independent undergrad student can borrow up to $57,500.

Federal grants. This federal money doesn’t need to be repaid. The most well-known higher education grant for college is the Pell Grant. Eligibility is based on a family’s Student Aid Index, or SAI — which replaced the expected family contribution — and is calculated on the FAFSA. The maximum Pell amount for the 2024-2025 school year is $7,395. A family with an SAI of negative 1,500, for example, will likely qualify for the full Pell amount.

Work-study. 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. The average amount of federal work-study earned in 2023-2024 was $1,615, according to Sallie Mae’s report.

Most states limit their aid to in-state residents. Some states, like Vermont, offer portable grants, which allow residents to qualify for funding even if they attend an out-of-state college.

While the FAFSA should be on a student’s radar to qualify for federal and state need-based aid, a college-bound student should also maximize merit-based aid, experts say. That’s because merit aid is one way to close the gap between the cost of attendance and need-based financial aid.

But not all schools award merit aid. Some schools reserve it for only exceptional circumstances, while others require students to maintain a certain GPA.

Beyond federal, state and institutional aid, there are other aid programs that serve specific student groups, such as Peace Corps volunteer benefits and the Reserve Officers’ Training Corps program, known as ROTC. Students who participate in ROTC can learn and train at the same time, and some receive a scholarship that covers housing and food or tuition, fees and books.

There are also military benefits that help veterans, active-duty service members and their dependents pay for school, such as GI Bill benefits that cover all or some costs.

Experts advise high school students to start their search locally and connect with school counselors to discuss additional types of grants or scholarship options, like ones from private foundations.

Students “should never pay for a site to look for scholarships,” Ramsay says. “The best resources are going to be free. And certainly don’t pay to apply for any scholarships, either. Folks who are looking to help support you in your education are going to want to do it at no cost to you.”

What Should I Know About Financial Aid Deadlines?

It’s important to meet college financial aid deadlines, which vary by institution. The financial aid priority deadline at the University of Iowa, for example, is Feb. 1 and aid is distributed first come, first served.

Other colleges have later deadlines. The University of Michigan, for instance, set its deadline for March 31. But applicants who file the FAFSA by the suggested date of Dec. 15 and get accepted will receive a preliminary financial aid package sooner.

But it’s not just institutional deadlines that parents and students should note. There are also different state deadlines, which families can find on the Federal Student Aid website.

“It’s always important to apply as soon as possible because, especially for state aid, there are limits to what the allocation is for the budget,” Turner says.

[Read: How Undocumented Students Can Get College Financial Aid]

How Do Schools Award Aid?

While there are many similarities in how schools award aid, each has its own unique process. Some schools offer larger financial aid packages than others, just like some institutions charge higher tuition rates than others.

For example, although some schools claim to meet full financial need for the cost of attendance with aid, those packages may include loans. A handful of institutions, including Davidson College in North Carolina and Washington and Lee University in Virginia, package financial aid awards with no loans.

When Will I Receive a Financial Aid Award Letter?

Financial aid award letters typically go out in winter or early spring — usually after or at the same time as a college acceptance offer. But timing may differ slightly this cycle due to the delayed FAFSA release date.

Should I Appeal a Financial Aid Award?

The process of appealing an award is known as a professional judgment review. Students need a legitimate reason for an appeal, including a change in their family’s financial circumstances after the FAFSA was submitted, experts say.

“Many students may be surprised when they receive their financial aid award letters and oftentimes will have hoped for more,” Ramsay says. “Ultimately, students and families are responsible for financing their education, but colleges want to help as much as possible if something has changed for a student.”

College financial aid experts say a family will usually be asked to submit a letter summarizing the special circumstance that affects their ability to pay. Examples of qualifying special circumstances might be a recent job loss, divorce, death in the family, out-of-pocket medical expenses or care costs needed for an elderly parent.

“For many schools, we’re trying to award the financial aid we have as fairly as possible,” Anderson says. “We’re trying to make sure we give it to the right students so that they can afford the college. Every family does have a story, we totally understand that. We read admissions applications and we get to meet these students. But the resources are limited.”

If they don’t have financial need based on the FAFSA and CSS Profile, she adds, “they’re not going to be eligible for grants. Now, we will be able to help make sure they’ve maximized their merit aid in that situation. But we can’t award grants based on a narrative or based on a story. It has to be based on the income and asset information that we’ve collected.”

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

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The Ultimate Guide to Understanding College Financial Aid originally appeared on usnews.com

Update 01/23/25: This article was published at an earlier date and has been updated with new information.

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