"Financial aid" is an umbrella term that covers grants, scholarships, work-study, and loans. They behave very differently — only grants and scholarships are true gift aid you never repay. This page explains the four kinds of aid, why grants come first in any sensible funding stack, and how the FAFSA unlocks all of them.
The four kinds of financial aid
1. Grants — need-based gift aid
You do not repay grants (except in narrow cases like withdrawing from school after disbursement, or breaking the TEACH service obligation). Grants are typically awarded based on financial need as measured by your Student Aid Index (SAI) from the FAFSA.
The main federal grants for undergraduates:
- Federal Pell Grant — up to $7,580 for 2026–27.
- FSEOG — $100 to $4,000 per year for Pell-eligible students with the greatest need; available at participating schools.
- TEACH Grant — up to $4,000/yr ($16,000 undergrad cap; $8,000 grad cap) for prospective teachers in high-need fields. Converts to a loan if the four-year service requirement isn't met.
State grants and most institutional need-based grants also flow from FAFSA data — see types of grants for college for the full landscape.
2. Scholarships — merit, identity, or field-of-study gift aid
Like grants, scholarships do not require repayment. They come primarily from colleges, foundations, civic groups, employers, and religious organizations. See our college scholarships and scholarship grants pages.
3. Federal work-study — earned aid
Federal Work-Study is a part-time job (on or off campus) for students with demonstrated need. You earn at least federal minimum wage and the earnings don't reduce next year's FAFSA aid the way ordinary income would. Eligibility requires FAFSA filing and a participating school.
4. Federal student loans — borrowed money
Loans must be repaid with interest. The 2026–27 federal options:
- Direct Subsidized Loans — for undergraduates with need; the federal government pays interest while you're in school.
- Direct Unsubsidized Loans — for undergraduates or graduate students; interest accrues from disbursement.
- Direct PLUS Loans — for graduate students and parents of dependent undergraduates; credit check required.
Federal loans are almost always a better deal than private loans because of fixed rates, income-driven repayment, and forbearance/deferment options. For more on the differences, see grants vs loans.
The smart order: grants → scholarships → work-study → federal loans → private loans
A sensible funding stack maximizes free money first:
- File the FAFSA to capture all federal, state, and most institutional grants.
- Apply for scholarships through free databases and your school. See free scholarships.
- Accept federal work-study if offered — it doesn't penalize next year's FAFSA.
- Borrow federal subsidized loans first, then unsubsidized if needed.
- Use PLUS loans or private loans last, and only after exhausting cheaper aid.
How to apply
- Create an FSA ID at studentaid.gov for the student (and a parent contributor if you're a dependent student).
- File the FAFSA as early as it opens. State and institutional deadlines are often months before the federal one.
- Review your FAFSA Submission Summary for accuracy within a few days of submitting.
- Wait for aid offers from each school you listed — typically March through May for fall enrollment.
- Compare offers carefully. A "$30,000 aid package" composed mostly of loans is far worse than a smaller package composed of grants.
- Accept grants and scholarships first, then work-study, then the minimum loans you need.
- Refile the FAFSA every year you want federal aid.
There is no application fee for the FAFSA or for any legitimate scholarship. Anyone charging to file the FAFSA or to "process" your federal aid is misrepresenting the process. Report scams to the FTC at reportfraud.ftc.gov.
Comparing offers
When you receive aid offers, separate them into:
- Gift aid (grants + scholarships) — never repaid.
- Self-help aid (work-study) — earned, not borrowed.
- Loans — must be repaid with interest.
Net price = total cost of attendance − gift aid. That's your real out-of-pocket cost (before borrowing).
Common questions
Is the FAFSA only for grants? No. The FAFSA unlocks federal grants, federal work-study, federal subsidized and unsubsidized loans, almost all state grants, and most colleges' need-based institutional aid.
Do I have to take loans if a school offers them? No. You can accept any portion of an aid offer and decline the rest. Loans should be a last resort after grants, scholarships, and work-study.
Are graduate students eligible for federal grants? The Pell Grant and FSEOG are undergraduate-only. The TEACH Grant is available for both undergraduate and graduate students. Most graduate-level federal aid is loans (Unsubsidized and PLUS) plus institutional fellowships and assistantships. See graduate school grants.
Can financial aid be revoked? Yes — failure to maintain satisfactory academic progress, withdrawal from courses, or changes in enrollment status can reduce or end aid. Schools will notify you and typically give a chance to appeal.
What if my family situation changes after I file? Request a professional judgment review from each school's financial aid office. They can adjust your SAI for documented changes — job loss, medical expenses, divorce, or other special circumstances.
The first and most important step in financial aid is filing the FAFSA. Everything else flows from there.