Financial Aid Information

Learning the lingo

Whether you have already chosen a college or you're still trying to decide, this is a good time to figure out what it will cost and how you'll pay for it.

The Cost of Education

Each college's financial aid office can provide information to help you figure the expenses. Don't be discouraged if the cost of continuing education seems too high—financial aid is available for students who qualify.

Financial aid is a general term for any financial assistance given to a student for any type of postsecondary education (four-year college, two-year college, trade and technical schools).

Generally, financial aid is divided into two groups:

  • Need-based financial aid
  • Merit-based financial aid

There are several types of financial aid and a variety of sources of financial assistance. Remember, not all aid is based on financial need. Some awards are based on academic performance or selected skills.

Types of Financial Aid

Need-Based Financial Aid

Most people believe they need financial assistance to pay for college. Because there is so much need and funds are limited, the federal government has set policies to measure need. Most financial aid is based on need.

Need-based means that your family's financial resources, as measured by a formula established by the federal government, are not sufficient to cover your educational costs. This formula analyzes a family's income and assets to determine its Expected Family Contribution (EFC) toward the cost of college.

The federal government's definition of financial need compares your income and savings to the cost of the college you plan to attend. Therefore, if you choose to attend a local community college, your financial need may be small, while if you choose to attend a higher priced college, your financial need may be large.

Once you determine your financial need, the college you plan to attend will help you identify sources of financial aid to meet your need. If you apply for assistance early, college staff may be more successful in finding financial aid.

Most financial aid packages include a variety of types of aid, including:

  • Scholarships or grants (money that does not need to be paid back)
  • Loans (money that is paid back, usually at lower interest rates than other types of loans)
  • Work-study (a job on campus)

Need-based financial aid can come from:

  • Federal government
  • State government

Free Application for Federal Student Aid (FAFSA)

The federal government uses the Free Application for Federal Student Aid (FAFSA) to compute need. Whatever source you are applying to, you probably will need to complete the FAFSA (opens new window).

If you provided a working email address when you applied, you'll get an email within a few days with a secure link to your FAFSA results—the Student Aid Report (SAR)—on the Web. Within a few weeks of filing your FAFSA, you will receive a paper SAR. This provides information from your FAFSA and your Expected Family Contribution (EFC).

Financial Aid Packages

Most colleges arrange financial aid packages for students who have financial need. The rules for these packages are based on federal financial aid rules.

To be eligible to receive a student financial aid package, you must complete the Free Application for Federal Student Aid (FAFSA) a citizen or permanent resident of the United States and be enrolled, accepted for enrollment, or attending at least half-time in an approved postsecondary educational institution.

More Information about Financial Aid

Talk to a counselor or college financial aid office about:

  • Sources of financial aid
  • Requirements
  • Applications
  • Application deadlines

Begin 3 to 6 months before the deadline.

Sources of Financial Aid

Financial assistance to attend college comes in many forms. Most people use a combination of these forms of aid to pay for college.

Federal Aid Programs

The federal government requires students to complete the U.S. Department of Education's Free Application for Federal Student Aid (FAFSA) as a basic application for its financial aid programs. You can get one from a high school or college for the appropriate year (usually available in November), or you can visit (opens new window) for general student aid information and the online FAFSA. It will be processed free of charge.

Your local high school counselor can help determine the programs you may be eligible for and how to apply.

Federal Supplemental Educational Opportunity Grant (FSEOG)
These grants are provided to a limited number of undergraduate students with financial need. Preference is given to students with exceptional financial need. FSEOGs are awarded by colleges.

Federal Pell Grant
Financial assistance awarded by the federal government on the basis of need. TheStudent Aid Report (SAR) informs students of their Pell Grant eligibility. The grant may be used toward tuition, room and board, books, or other educational costs and requires no repayment.

Federal Perkins Loan
Loans funded by the federal government and awarded by the institution. The loans feature low interest rates and are repayable over an extended period of time.

William D. Ford Federal Direct Loan (Direct Loan) Program
Provides both Stafford Loans for Students and PLUS Loans for parents. Eligible students and parents borrow directly from the federal government at participating schools. Direct Loans also include Direct Consolidation Loans. Repayment of these loans is made to the U.S. Department of Education.

Federal Family Education Loan (FFEL) Program
Provides both Stafford Loans for students and PLUS Loans for parents through participating private lenders. FFEL also provides for Federal Consolidation Loans. Repayment of these loans is made to the bank or other private lender that made the loan.

Subsidized FFEL or Direct Stafford Loans—are awarded on the basis of financial need. Recipients will not be charged interest until they begin repayment.

Unsubsidized FFEL or Direct Stafford Loans—are not awarded on the basis of need. Interest accrues from the time the loan is disbursed until it is paid in full.

PLUS Loans (for parents)—provide low interest loans to credit-approved parents of eligible undergraduate students. Repayment typically must begin 60 days after loan is fully disbursed.

Consolidation Loans—allow students or parents the opportunity to combine several types of federal loans into a single loan with one monthly payment.

Federal Work-Study
A government-supported financial aid program coordinated through financial aid offices in which an eligible student (based on need) may work part-time while attending class, generally in career-related jobs.

For more information about federal financial aid programs and your rights and responsibilities under these programs, read Funding Your Education: The Guide to Federal Student Aid (opens new window). You can also request your free paper copy by contacting the U.S. Department of Education (opens new window) at 1-800-4-FED-AID, or writing to:

U.S. Department of EducationFederal Student Aid Information CenterP.O. Box 84Washington, DC 20044-0084

ACT provides links to other websites for informational purposes only. ACT is not responsible for the content in other sites, and links from the ACT website to other sites are not intended to imply endorsement of them by ACT.

State Aid Programs

Most states support various aid programs (both need-based and merit). Generally, eligibility for state need-based programs follows the federal guidelines.

Grants and Scholarships

Grants are financial awards that do not need to be repaid and typically come from state or federal sources. They are usually based on financial need. Scholarships are financial awards based on merit or merit plus need and come from government or private sources. They don't have to be repaid either.

You only need to complete one Free Application for Federal Student Aid (FAFSA) regardless of how many colleges you are considering. The FAFSA includes a section for you to list the colleges to which you want your information sent.

Complete the FAFSA as soon as possible after January 1 during your senior year or the year before you plan to attend college.

You should also check with each college to determine if there are additional forms required.

Merit-based Scholarships

Merit-based scholarships can be earned based on your talents or performance in a variety of areas:

  • Academic
  • Athletic
  • Extracurricular involvement
  • Leadership
  • Volunteer work
  • Art, theater, music

A few scholarships are based solely on merit, but most scholarships use a combination of financial need and merit.


Since banks generally consider loans to students to be very risky, the federal government guarantees student loans. You may borrow from the federal government, from the school you attend, or from a bank.

Interest rates vary by program. For federal loans, qualifying students—based on need—will not have to pay interest while in school. Rates are usually lower than other loans and repayment is usually delayed until you graduate. Loan programs also are available to eligible parents to help with college expenses of their qualifying children.

There are three types of loans:

  • Student loans: Interest begins when you get the money, but you don't have to repay the loan until you graduate.
  • Parent loans: Parent Loan for Undergraduate Students (PLUS) allows your parents to pay for your education. Parents may also want to consider a home equity loan.
  • Alternative loans: If student or parent loans do not cover the complete cost, private lenders may offer loans to cover the rest.

Combinations of these are called consolidation loans. As you near graduation or after graduation, a consolidation loan may lock in at a lower interest rate.

The federal government may subsidize your loan if you demonstrate financial need. This means the government pays part of the interest. You may get the loan from the college or from a bank or other lender.

These loans must be paid back. If you fail to graduate, or do not find a job when you graduate, it may be difficult to pay these loans back. You may be able to reduce the amount you borrow by working while going to school.

Military Programs

Military benefits—The military offers several options to help you pay for college.

  • Reserve Officers' Training Corps (ROTC)—provides money for college while you are in school. Upon graduation, you enter the military as an officer.
  • Servicemembers Opportunity Colleges (SOC)—More than 1800 colleges participate in this program. It allows servicemembers to earn a degree from a civilian college while serving in the military.
  • Veterans—a variety of programs are available to those who have served in the military. Check with the Veterans Administration (opens new window) for details.

ACT provides links to other websites for informational purposes only. ACT is not responsible for the content in other sites, and links from the ACT website to other sites are not intended to imply endorsement of them by ACT.

Work Study Programs

Jobs that allow students to earn money toward their education while they are enrolled in school. Students can sometimes get jobs related to their program of study.

Working and Savings

Many students choose to work while in college. A job can help pay for college tuition and other expenses.

Work Study
Work-study programs are funded by the federal government and some states, and are included in many students' financial aid packages. Completing your Free Application for Federal Student Aid (FAFSA) may be the first step to finding a work-study job.

Work-study provides jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay educational expenses. The program encourages community service and work related to each student's course of study.

You will earn at least the current minimum wage, but you could be paid more, depending on the job. Work-study jobs are usually flexible and work is scheduled around your classes.

Employment On and Off Campus (No Work Study)
Most colleges and college communities offer a wide variety of employment opportunities for students who are seeking jobs to help defray their college costs. Most colleges maintain a student employment office that will assist students in locating both on- and off- campus job opportunities.

College Savings

Are you planning ahead?
College costs have increased by 8% a year in the past, more than twice the rate of inflation. Use a calculator to find out how much college will cost when you are ready to enroll, and how much you need to save each year.

Parents should look into tax-free college savings programs.
Section 529 of the IRS code allows tax-free funds to be set aside for college. With Qualified Tuition Programs (QTP), you can prepay tuition (locking in today's tuition rate) to set aside money for college. 

How to Apply for Financial Aid

The first step in applying for financial aid is to complete the U.S. Department of Education Free Application for Federal Student Aid (FAFSA).

  • File only one FAFSA regardless of how many colleges you are considering. The FAFSA includes a section to list the colleges where you want your information sent.
  • Forms are available at the FAFSA website (opens new window), at high school counselor offices, or by calling the Federal Student Aid information hotline (800/433-3243).

Applying for Need-Based Financial Aid

Expected Family Contribution

The FAFSA collects demographic and financial information from you and your parents to determine an Expected Family Contribution (EFC). This figure determines your eligibility for:

  • federal Pell Grants
  • other federal financial aid programs
  • many state programs

The EFC is determined according to formulas set yearly by U.S. Congress.

There are numerous financial aid resources to help in your search. We encourage you to check with your high school counselor.

ACT provides links to other websites for informational purposes only. ACT is not responsible for the content in other sites, and links from the ACT website to other sites are not intended to imply endorsement of them by ACT.

Applying for Grants and Scholarships

Scholarships and grants come from a variety of sources. A few sources of grants and scholarships are:

  • Federal and state governments
  • Individual colleges and universities
  • Community organizations
  • Parents' and students' employers

Scholarships typically do not have to be repaid. Many scholarships are extremely competitive, so start researching early. To find grants and scholarships:

  • Complete the Free Application for Federal Student Aid (FAFSA) to give you an idea whether you are eligible for need-based financial aid.
  • Ask employers, clubs, associations, or other local groups if they offer scholarships.
  • Talk to the financial aid office at the college you plan to attend.
  • Talk to your high school counselor and find out if they know of any grants or scholarships.
  • Use the Internet to do a scholarship search. 

Avoiding Scholarship Scams

Watch out for scholarship scams. Every year, many families lose money at the hands of bogus scholarship companies who claim to have access to billions of dollars in private funding. They say these monies are unclaimed student aid. Before you use a scholarship service, make sure a reputable company backs the service.

A scholarship service may be a scam if they tell you:

  • the scholarship is guaranteed or your money back
  • you can't get the information anywhere else
  • they will do all the work
  • the scholarship will cost money
  • they need your credit card or checking account number in advance

To check a scholarship service, talk to your college financial aid office or call the National Fraud Information Center at 800/876-7060.

Financial Aid Resources

General Information

Government Sites

Loans for College

Scholarships & Scholarship Search

ACT provides links to other websites for informational purposes only. ACT is not responsible for the content in other sites, and links from the ACT website to other sites are not intended to imply endorsement of them by ACT.