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  • 4m.

    The 3 Main Categories Of Financial Aid

    Not all funding for college is created equal. While some financial aid is free money, you have to repay or earn others. Knowing the difference can save you in the long run.
    By Ashley Norwood - Updated: October 3, 2017

    What You'll Learn

    • What types of free financial aid are available.
    • Which types of financial aid you have to pay back.
    • How you can earn money for school by working on campus.
    Woman writing something down

    If you want to go to college, you're going to have to figure out how to pay for it. For many students, that means applying for financial aid. If you're concerned that this means taking on debt, you should know that there are other options—including grants, scholarships, and work-study.

    While you do have to repay some financial aid, that type of funding is just one of the three main categories you may be eligible for:

    • Free money
    • Money you have to work for
    • Money you have to repay

    By maximizing the amount of free money you receive (or the money you earn working), you can minimize how much you have to repay. Here are some details about the different types of aid that can help you do this.

    Free Money

    Free money for college is usually available in the form of grants or scholarships. As the "free" implies, this is financial aid you don't need to repay.


    Grants are free money that is typically offered based on your financial need, which is determined by the information you provide on your Free Application for Federal Student Aid (FAFSA). Federal or state governments, as well as your school, usually award grants. Best of all, you don't usually have to apply for grants separately. When you complete and submit the FAFSA, the federal, state, and institutional grants that you are eligible for will be awarded to you and appear on your award letter.


    Scholarships are awards of free money that is typically based on merit or other criteria. Many different entities award scholarships—including corporations, service organizations, local governments, schools, and more. There are scholarships for all sorts of achievements, and they aren't always based on your grades. Use our scholarship search tool to find scholarships that you may be eligible to receive.

    Money You Have To Work For


    This type of award isn't free money or a loan—a work-study award is like an offer to apply for a job on campus. It's up to you to find the job and work to earn the amount you're eligible for. Unlike other forms of financial aid, you receive these funds in a paycheck or as a direct deposit to your bank account—so the money won't come right off of your tuition balance (unless your school allows you to set that way). You can use your work-study funds as you see fit, but putting them toward your school costs can decrease the amount you have to borrow.

    Money You Have To Repay

    You may still need money for school beyond your scholarships, grants, and work-study. Financial aid can also come in the form of loans to help you cover this gap. You will need to repay any loans you borrow—usually with interest. Each loan program differs, so make sure you know the specifics of any loan that you are going to borrow before you sign for it.

    Federal Loans

    The federal government offers several types of loans to students and parents. Unless you've previously borrowed the maximum amount of student loans or defaulted on an educational loan, you should generally be eligible for some federal student loan money just by completing the FAFSA and being a U.S. citizen or eligible noncitizen.

    The most common types of federal student loans are subsidized and unsubsidized Stafford loans, Perkins loans, and PLUS loans for parents and grad students. If your FAFSA information indicates that you have financial need, you may be eligible for subsidized Stafford loans. This type of loan doesn't accrue interest while you're attending school at least half time—which can decrease the amount you have to repay.

    Private Loans

    Private entities (like banks, credit unions, and other third parties) offer these loans. The terms of private loans vary depending on the lender and the loans you qualify for, so be sure to shop around. Federal loans typically have better terms and conditions than private ones, so read all the fine print before borrowing private loans—and exhaust all of your federal student loan options first.

    Institutional And State Loans

    Your college or your state may offer these loans to you directly. These are typically based on your financial need. Like private loans, the terms vary from loan to loan and lender to lender, so pay attention to the details. Unlike private loans, institutional and state loans tend to have slightly more flexible rules, and some may offer forgiveness options similar to federal loans.

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