The Different Types of Financial Aid Explained: Loans, Grants, & Work-Study Programs

Decoding the different types of financial aid 

Navigating the world of financial aid can feel like solving a complex puzzle, but learning more about the different ways to pay for college can help bring the picture into focus.  

Whether you’re a high school student preparing for college or a working professional thinking about further education, this article will help you understand the different financial aid ​options to ​finance your future. 

What is financial aid?

Financial aid is a broad term that covers many types of financial assistance to help students cover the cost of their education. Financial aid can come from many different sources, including federal and state governments, educational institutions, and private organizations.   

The primary goal of financial aid is to bridge the gap between a student’s Expected Family Contribution (also known as the Student Aid Index) and the total cost of a student’s education. Let’s explore the different types of financial aid to help you navigate the process and maximize the options you may be eligible ​to receive​​​.

The primary types of financial aid

Financial aid can be a lifeline for many students, providing the necessary resources to pursue their ​career ​dreams. Broadly, financial aid can be categorized into four types: scholarships, grants, loans, and work-study programs. Each type of financial aid serves a unique purpose and has its own set of eligibility criteria and repayment terms.  

While all these types of financial aid aim to make education more affordable, they differ in a few key ways. Scholarships and grants are types of “gift aid” that do not need to be repaid, while loans must be repaid with interest. Work-study programs, on the other hand, provide students with part-time employment to help pay for their education expenses. Here’s a breakdown of each type:  


Scholarships are a popular form of financial aid that does not need to be repaid. They are typically awarded based on merit, need, or a combination of both. Scholarships can come from various sources, including colleges, universities, private organizations, and government agencies. 

Merit-Based Scholarships
Merit-based scholarships are awarded to students with outstanding academic, artistic, or athletic achievements. Merit-based scholarships are often competitive, requiring students to maintain a certain level of performance to continue receiving the scholarship. These scholarships can significantly reduce the financial burden of education, allowing students to focus more on their studies. 

Need-Based Scholarships 
Need-based scholarships are for students with financial need. The amount awarded often depends on the student’s family income, assets, and other financial factors. These scholarships aim to level the playing field, ensuring that all students, regardless of their financial situation, have the opportunity to pursue higher education. 

Athletic Scholarships
Athletic scholarships are intended for students who excel in a particular sport. Colleges and universities often offer these scholarships to attract talented athletes to their athletic programs. Athletic scholarships can cover a significant portion of a student’s education expenses, making it possible for them to pursue both their athletic and academic goals.


Grants, like scholarships, are a form of financial aid that does not require repayment. They are typically need-based and can come from various sources, including federal and state governments and educational institutions. 

Federal Grants
Federal grants are awarded by the federal government and are often based on financial need. The most common federal grant is the Pell Grant, awarded to undergraduate students who have not yet earned a bachelor’s or professional degree. 

State Grants
Individual states award state grants to residents who demonstrate financial need. The eligibility criteria and amount awarded can vary from state to state. Still, these grants can provide significant financial assistance to students attending college in their home state. 

Institutional Grants
Institutional grants are awarded by colleges and universities to students based on financial need, academic merit, or a combination of both. These grants can significantly reduce the cost of attendance, making college more affordable for many students. 


College loans are a form of financial aid that must be repaid. Students can receive these from the federal government or private lenders. While loans can provide significant financial assistance, students need to understand the terms and conditions of their loans before accepting them. 

Federal Student Loans
The federal government offers federal student loans, which often have lower interest rates and more flexible repayment options than private loans. They can be subsidized (the government pays the interest while you’re in school) or unsubsidized. Federal student loans also offer various repayment plans, loan forgiveness programs, and deferment options, making them a popular choice for many students.  

To take advantage of federal loans, you must fill out the FAFSA. You should also be aware of how FAFSA works and the FAFSA deadlines to ensure you don’t miss out on any potential aid. 

Private Student Loans
Private student loans are offered by private lenders like banks, credit unions, and companies like Ascent. These loans often have higher interest rates than federal loans. Still, they can be a good option for students who need additional funding beyond what they can receive from federal aid.  

Private loans can cover the gap between the cost of attendance and the aid received from other sources. You can learn more about college loans on our website.  


Work-study programs provide part-time jobs for students with financial needs. Work-study is a federal student-aid program designed to help students earn money for school. Not only do work-study programs provide financial aid, but they also offer students valuable work experience and the opportunity to develop professional skills. The amount a student earns can’t exceed their total work-study award. 

 The flexibility of work-study jobs also allows students to balance their work commitments with their academic responsibilities.

Which type of financial aid is right for me?

Choosing the best types of financial aid for you can feel like a big decision, but remember, it’s all about finding which solution fits your needs. Your unique circumstances, including your financial situation, academic achievements, and career dreams, will all play a part in helping you make a decision. 

If paying for college feels like a daunting prospect, don’t worry – plenty of options are designed to help you out. Need-based scholarships, grants, and federal student loans are all geared toward supporting students pursuing their educational goals.  

Remember— it’s not a one-size-fits-all situation. You can mix and match different types of aid to create a financial aid package that suits your needs. So, take your time, explore all your options, and don’t be afraid to ask questions.

Learn more with Ascent

At Ascent, we’re committed to helping students navigate the often-complex world of financial aid. We offer a range of financial wellness resources to help you make informed decisions about how to finance your education. Whether you’re considering federal or private student loans, scholarships, or work-study programs, Ascent is here to help you achieve your goals in higher education. 


Is FAFSA a loan or aid?
FAFSA, or the Free Application for Federal Student Aid, is not a loan or aid. Instead, it’s a form that students fill out to apply for federal and state financial aid. This can include grants, loans, and work-study programs. The information you provide on the FAFSA is used to determine your eligibility for the different types of aid that are available. 

What is the biggest source of financial aid for college?
The federal government is the largest source of financial aid for college. This aid comes from grants, loans, and work-study programs. However, students can also receive financial aid from state governments, colleges, universities, and private organizations. It’s important to explore all your options and understand the FAFSA eligibility requirements to maximize the financial aid you can receive. 

Do I have to pay back financial aid?
Whether or not you have to pay back financial aid depends on the type of aid you receive. Scholarships and grants, for example, are types of “gift aid” and do not need to be repaid. Work-study earnings are also yours to keep and do not need repaying. 

On the other hand, loans must be repaid with interest, including both federal and private loans. The repayment terms vary based on the type of loan, so it’s important to understand the terms of your loan before you accept it. Always remember that loans should be your last resort after exploring all other types of financial aid. 

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