A Comprehensive Guide to Financial Aid and How it Works

Earning a college degree is perhaps one of the greatest accomplishments in life. According to Education Inspire Change, only 6.7% of people in the world will do it in their lifetime. But what happens when one is accepted into a university but cannot pay the cost?

Financial Aid and How it Works

Financial aid is the answer to most students’ worries. In 2021 alone, approximately 85 - 90% of students attending public and private institutions received some form of financial aid to further their education. This number continues to rise every year along with inflation and college costs.

One may be wondering what exactly financial aid is and how it works. Take a look at our comprehensive guide to financial aid to find out.

What is Financial Aid?

Simply put, financial aid is money and resources dedicated to undergraduate and graduate students who want to continue their education but have financial difficulty. It can be a federal grant, federal or private loan, work-study agreement, or scholarship, but one thing is certain: financial aid is needed by many. Let’s take a look at the various types of financial aid one may want to consider.

Federal Grants

Federal grants are one of the most popular forms of financial aid in the United States and the world. They are awards of economic assistance given primarily to undergraduates to further their education. They do not need to be repaid. In the U.S., one student can receive up to $6,495 per academic year in federal grants, including the Pell Grant.

Federal or Private Loans

A loan is an amount of money given by a bank, credit union, or government entity that must be repaid by the borrower with interest. Federal loan interest rates are usually set on July 1, and cannot be changed. Student borrowers can receive up to $31,000 if they are dependents and up to $57,500 if they are classified as independent (no parents or guardianship).

Subsidized Loans Vs. Unsubsidized Loans

A direct subsidized loan can only be used for undergraduates with financial needs, and no money must be repaid while the borrower is attending school for at least half-time.

Private Loans

Unlike federal loans, private loans are made by a private institution such as a bank, credit union, or organization. Like federal loans, they must be repaid, often with interest.

Work-Study Programs

Sometimes the student’s grants or college savings come short of covering all of the costs associated with higher education. When this occurs, the student can take advantage of a work-study program. Work-study programs provide the student with a job (usually on-campus) that pays at least minimum wage. The number of hours will determine the pay, and the pay will go directly to the school with any leftovers doled out to the student.


The most popular and most sought-out form of financial aid is the scholarship. Scholarships are monetary awards given to undergraduate or graduate students. They do not need to be repaid, and they cover a wide range of college-associated costs like tuition, room and board, meals, and even books and technology.

Academic Scholarships

Academic scholarships vary from school to school. Some academic scholarships cover full tuition and other costs while some only cover a partial amount. Nearly all academic scholarships are awarded based on merit, that is, the student must earn it in some way. Many scholarships require the student to have a minimum GPA (grade point average), minimum scores on the ACT and SAT, and involvement in some form of extracurricular activity.

Athletic Scholarships

Athletic scholarships are similar to academic scholarships in that they are earned based on merit; however, merit is generally related to athletic performance and not academic proficiency. To be clear, athletic scholarships usually have academic minimums as well, but they are usually not as rigorous as academic scholarships. Also, the student must remain active in the selected sport to remain eligible for the scholarship.

How Does Financial Aid Work?

Knowing what financial aid is and the different types are just the beginnings. Take the following steps to ensure financial aid.


Colleges and universities around the world are not going to let anyone in without payment. Government entities and financial institutions are not going to just give out a load of cash and say, “have fun.” One must seek and find available financial aid opportunities. Asking a high school counselor or seeking information on etmag.co.uk are good places to start.

One can also look up available loans and scholarships on the U.S. Department of Labor’s free scholarship search engine.


The easiest and fastest way to apply for federal student aid is through the FAFSA (Free Application for Federal Student Aid). Inputting personal information such as one’s social security number or CSS Profile (for international students to the U.S.), where they live, and their family’s gross income will allow the federal government to calculate how much they can receive in financial aid.

Often, colleges and universities will have a page on their websites dedicated to scholarships offered by the school. The information needed will be similar to the FAFSA but include academic information such as GPA and test scores.

Await Letter of Award

A few weeks or months after applying for financial aid, one should receive a letter of award in the mail or through email. This letter will state the amount of money available for the upcoming school year and the types of aid offered. Students can choose a mixture of awards such as receiving the Pell Grant and taking out subsidized and private loans. Note that the amount of money given every year is subject to change, so students must fill out a FAFSA and/or apply for scholarships every year unless otherwise stated in the award letter.

The financial aid process does not have to be mysterious or elusive. There are many options available with over $138.6 billion in aid possible. All students have to do is search, apply, and await. Financial aid can be the tool one needs to further their education and fulfill their dreams.