How Does Financial Aid Work? A Comprehensive Breakdown

When you choose to pursue a college degree, you're making a decision that can lead to a successful career and personal fulfillment. Considering how you'll fund your education is essential to this decision. Financial aid can seem complex and overwhelming for someone new to the process, but it doesn't have to be.

Here is a guide to help you navigate your way.

Federal and Private Funding Possibilities

Many federal and private funding resources are available to help you with the costs associated with earning your degree. They include student loans, grants, scholarships and more.

Let's break down some of the common resources:

• Federal Student Loans - Funded by the government, federal student loans have a fixed interest rate, meaning the interest rate will not fluctuate over time. You're not required to make payments to a federal student loan while you're enrolled in college at least part-time.
• Grants - Grants are almost always awarded based on financial need and may be considered "free money,” or money that does not need to be repaid. Grants are given on the federal, state, collegiate and private levels.
• Private Loans - Private loans often have high interest rates, and you may be expected to make payments while still in school.
• Scholarships - Scholarships are another form of “free money” that may be awarded if you prove through written, oral or even demonstrative communication that you are skilled or accomplished.
• Work-Study - If you qualify, work-studies provide you with part-time job opportunities, preferably in your field of study. These federally funded jobs are located either on or off campus.

While these are all resources that can help you, some may better suit your situation and needs than others. Reviewing your financial offer and considering other options to help you pay for college is important.

How to Apply for Financial Aid

Financial aid isn’t simply awarded because you need it. There’s generally a formal application process to go through, and it’s important to know that some of these applications must be completed annually for each academic year you plan to be in school.

Here's how you can apply for federal and private funding as well as scholarships:

Federal Funding

You can submit an annual Free Application for Federal Student Aid (FAFSA) which considers your financial status compared to the cost of attending your university.

The government and the university will work together to determine a financial aid offer package containing federal student loans, grants or work-study options fit for you.

Read more: What is FAFSA Used For?

Private Funding

You can request a private student or parent loan from lenders such as banks, credit unions and state agencies.

As you do your research, be sure to read the details carefully as the terms vary by organization. Different types of organizations may also award private grants, almost always requiring an application.

Read more: What is a Student Loan and How Does it Work?

Scholarships

Many organizations and individuals offer scholarships of varying amounts pertaining to an array of qualifications. These often require applications that ask for a response to an essay prompt and sometimes request financial information.

Tools such as Scholarship Universe, a database with a variety of pre-vetted scholarships, can help SNHU students simplify the scholarship search process. Once enrolled, students can access the scholarship database through an internal portal.

Applications vary in length, so be sure to set aside plenty of time to provide detailed, accurate information.

Read more: How to Get a Scholarship and Why It Matters If You Do

When Should You Apply for Financial Aid?

You can complete your FAFSA beginning on October 1 each year, and deadlines vary by state and school. Be sure to check in with the school you're attending or would like to attend to ensure you're aware of any financial aid deadlines.

To maintain your funding or seek new funding, you'll need to reapply for financial aid each year you attend college. Keep in mind that dates can change from year-to-year, especially if you move to a different state or transfer colleges.

If you've applied to FAFSA in the past, you might notice the process has changed. In 2024, the FAFSA Simplification Act reduces the number of questions that parents and students need to answer. You may also be required to transfer tax information to the Department of Education going forward, which used to be optional.

How Much Money Do You Get From Financial Aid?

The amount of aid you receive each year depends on your level of financial need. Since financial needs and circumstances can fluctuate, your financial offer might also look different from year to year. You may also discover that your financial offer varies by school. So, if you're considering multiple schools, you'll want to pay attention to what's offered in each package.

When it comes to private funding, including private loans and some scholarships, you may also need to share your financial information to determine your need, although there are also merit-based scholarships.

Some financial aid options may allow you to hold off from taking out loans right away and instead find alternative solutions such as working part-time, applying for scholarships or saving up in advance.

If you're a member of the workforce, you may also have a tuition reimbursement program available to you. In 2022, the Society for Human Resource Management (SHRM) reported that 48% of employers offered a tuition program to help employees cover the cost of college.

How Does Financial Aid Give You Money?

You can receive financial aid in a variety of ways. After your FAFSA form is processed, you will receive a personalized financial offer letter containing any federal loans, grants or scholarships you can accept. You'll also learn whether you're eligible for a work-study position.

"There may be times a student needs all of the aid and other times where they do not," said Donna Camire, one of the directors leading the Student Financial Services team at Southern New Hampshire University (SNHU) Global Campus. "It is based on each student’s individual circumstance."

Once you commit to a school and select your financial aid preferences, you may need to complete entrance counseling and sign a Master Promissory Note. After you've completed the necessary steps, your financial aid is typically applied toward your college expenses.

If you're a scholarship recipient, you might receive your scholarship money in a couple of different ways, depending on the organization that awarded it. For example, the money may be sent directly to your school, or you may receive it directly in the form of a check.

If you receive a scholarship through Scholarship Universe, the funds will be sent to your school. "Once you have been awarded the scholarship, Southern New Hampshire University will receive those funds from the external scholarship provider," said Tanner Shaw, a project manager on the financial literacy team at SNHU.

He said you will then receive a new offer that summarizes all the financial aid you're receiving, including scholarships, grants and loans.

Do You Pay Back Financial Aid?

It depends on the type of financial aid you accept. Scholarships and grants, for example, do not need to be paid back.

If you accept federal or private loans to help you pay for college, know that you will need to pay them back over time. Interest rates and payment deadlines vary widely, so it's essential to review all the expectations before committing to them.

Does Anyone Qualify for Financial Aid?

Many people do. According to the Integrated Postsecondary Education Data System (IPEDS) by the National Center for Education Studies (NCES), 85.6% of first-time students attending college full-time received financial aid in the 2022-2023 school year.

To better understand the steps involved in receiving financial aid and approximately what a degree will cost, reach out to the Student Financial Services team at the college or university you attend or hope to attend. They can clarify areas of confusion, answer questions specific to your situation and offer details that pertain directly to that school.

At SNHU, finance counselors focus on helping students understand all their options and gain financial literacy along the way.

"In the simplest of terms, a finance counselor’s role is to educate each student on how financial aid works," Camire said. "Each finance counselor is equipped to answer most financial aid questions. They provide the information needed for a student to make an informed decision on how they want to fund their education."

The financial aspect of earning a degree doesn't have to be stressful, especially with the support and resources available to you as a student or parent — such as Financial Aid 101 and the Net Price Calculator.

Being unsure about the financial aid process should never be an obstacle to earning a degree.

Rebecca LeBoeuf Blanchette '18 '22G is a writer at Southern New Hampshire University, where she fulfills her love of learning daily through conversations with professionals across a range of fields. She earned her Bachelor of Arts in Communication with a minor in Professional Writing at SNHU’s campus in Manchester, New Hampshire, and followed her love of storytelling into the online Master of Arts in English and Creative Writing at SNHU. Connect with her on LinkedIn.