What is Student Financial Aid?

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  • Written By: Brendan McGuigan
  • Edited By: Andrew Jones
  • Last Modified Date: 16 November 2018
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Student financial aid is a blanket term for funding sources that assist students in paying for their higher education costs. These funding sources may come in the form of subsidized loans, general loans, grants, or scholarship awards. Generally, student financial aid does not include actual government-subsidized education, such as exists in many Scandinavian nations. Student financial aid can be broadly broken down into two categories: need-based, and merit-based aid.

Need-based student financial aid is generally determined in the United States by the completion of the Free Application for Federal Student Aid (FAFSA). The FAFSA is used to determine eligibility for Stafford Loans, Pell grants, PLUS loans, work-study programs, and many institution-specific programs as well. The FAFSA looks at a student’s financial situation, as well as the situation of his or her parents. The size of the family, the combined income, combined assets, and how many children are currently in college all help determine how much money the family is expected to put towards school.

This Expected Family Contribution (EFC) is then taken out of the total cost, and the remainder is eligible for a combination of various need-based vehicles. Generally, this will be a combination of grants and subsidized loans. In cases where students are independent of their parents, and so no money can be expected, they can generally appeal directly to the university or college they will be attending, asking for their total need to be reappraised on an individual basis.


Loans, such as the Stafford Loan, which make up student financial aid, generally have terms significantly more favorable than those of private loans. This is because the loans are guaranteed by the United States government, and therefore lending institutions know they will be able to collect on them. These loans generally do not begin accruing interest while the student is in school, and even after graduation a student may petition for an economic hardship deferment, allowing the loans to continue being subsidized for a temporary period until they can afford to make full payments again.

Grants, such as the Pell Grant, are not loans, and are not expected to be repaid. They are intended for students from low-income families, to help them attend an institution of higher learning that they would otherwise be unable to attend. More than 50% of recipients come from families with an income of less than $20,000 US Dollars (USD), and roughly 90% come from families with an income of less than $40,000 USD. To continue receiving a Pell Grant, a student must keep at least a 2.0 Grade Point Average, and if they fall below that point they must pay the grant back.

Merit-based student financial aid is independent of economic need, and is instead based on academic performance, extracurricular performance, or some other rubric of merit. Many private organizations make scholarships available to students to study at a university. Many other groups make merit-based aid available to students who meet certain criteria, such as membership in an ethnic group, a religious group, or some other defining feature with a group affiliation.



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