The Ultimate Guide to Financial Aid and FAFSA

Navigating the world of financial aid can be overwhelming for college-bound students and their families. From scholarships to loans, there are various types of aid available to help students pay for their education.

In this ultimate guide to financial aid, we will break down the different types of aid, eligibility requirements, and how to maximize your chances of receiving aid. Whether you’re a high-achieving student or in need of financial assistance, this comprehensive guide will help you understand the options available to you.

Unlock your path to affordable education with our guide to financial aid and FAFSA. Get expert tips and maximize your chances of securing financial assistance.

What is financial aid?

Financial aid refers to any money provided by educational institutions or third-party organizations to help students cover the cost of college tuition and attendance. It can come in the form of scholarships, grants, loans, or work-study programs. The goal of financial aid is to make college more accessible and affordable for students from all backgrounds.

However, within this very simple definition, there are a few types of aid that a student can qualify for.

What kinds of financial aid are available?

There are four types of aid money available to students:

Merit, Need-based, Scholarships*, and Educational Loans*

Scholarships*: unlike merit or need-based aid, are usually provided by third parties and may come with strings attached [such as maintaining a certain high GPA]

Educational loans*: This isn’t “freely-given financial aid” but rather a traditional loan packaged for college students.

Each aid category is associated with a different institution and process. Let’s go into each category.

Merit Aid

Merit aid is usually awarded directly to students by the institution extending the offer of admission. As you receive your acceptance letter, you are usually given an “aid package” that includes a combination of need-based and merit aid.

Merit aid is not determined by one’s ability to afford college. Instead, it is based on strength factors in the applicant’s profile. These include GPA, SAT/ACT scores, extracurricular excellence, athletic or artistic achievement, or any other special-interest merit.

This type of aid may be offered either conditionally or unconditionally. If you receive a conditional aid offer, there may be certain strings attached. You may have to maintain a high GPA or participate in school-sponsored events.

But merit aid isn’t all about praising student achievement. It’s also a calculated tool that schools use to induce students to attend their programs. It factors in what’s called the “Discount Rate.”

The “Discount Rate” is the average annual “discount” universities provide to the “sticker price” of the college.

Basic discount rate example: If the average discount rate for UndergradAtlas College is 30%, and the one-year tuition price is $50,000, then the average student will receive roughly $15,000 in aid awards.

A school may give you a $10,000 merit scholarship to attend their program. Be proud, but don’t be fooled. That scholarship is part of their strategic offering to get you to enroll, and you still have to pay the $35,000 bill every year.

Visiting your target schools and seeing what kind of merit aid they offer is highly recommended. Their eligibility terms should be stated on their “Merit Aid” page.

Need-based aid

Need-based aid is awarded to students who need financial aid in order to attend college because of their family income levels.

Your need-based aid is calculated by individual financial aid offices at colleges and universities based on data gathered by the federal government (see “How is need calculated).

According to the federal government, the following factors go into your need calculation:

Your eligibility depends on your Expected Family Contribution, your year in school, your enrollment status, and the cost of attendance at the school you will be attending. The financial aid office at your college or career school will determine how much financial aid you are eligible to receive.

According to the same website, here is the basic process by which your “demonstrated need” is determined.

  • First, staff members from the school decide your “cost of attendance” (COA) at the school (this is the flip side of the discount rate… the cost of tuition minus any merit aid or other offsets). Let’s say COA is $50,000.
  • Then they consider your “expected family contributions” (EFC). The EFC is “calculated according to a formula established by law” and is basically an estimate of how much your family can afford to pay toward your college tuition. It is known for being wildly inaccurate. For the sake of this example, let’s assume the EFC is $20,000 a year.
  • They then subtract the EFC from the cost of attendance. In this case, the EFC of $20,000 is subtracted from the COA of $50,000. The demonstrated need-based aid is thus $30,000.
  • This $30,000 is the amount of aid that can be covered by need-based aid programs, such as… Federal loans, state grants, work-study programs, and other forms of aid.


Scholarships are a dark horse in the college process. Most people will receive some form of merit aid from their school. Most people will also receive some form of need-based aid from a combination of their school and the government. But relatively few people go out of their way to win scholarships offered by other third parties.

The truth is, there are millions of dollars of unclaimed scholarships floating around out there. Everyone under the sun offers them. Law firms will hand out $10,000 scholarships to students attached to easy essay competitions. Charitable institutions sometimes host full-ride scholarships that anyone can apply to.

There is a never-ending supply of interest or group-based organizations (boyscouts, equestrian societies, Latvian culture groups, etc., etc., etc.) that one could receive a scholarship from.

So what’s the rub? Well, to get the scholarships, you have to track them down. And, like applying to 20 colleges, the labor can multiply pretty quickly if you’re trying to apply to 20 scholarship programs. They usually require you to write essays. And essays aren’t easy to crank out.

But there are some resources for aggregating scholarship opportunities and sorting out the ones you might best qualify for.

Some of these are Scholly, Bold, and Niche. Usually, scholarships come with certain eligibility guidelines. You might need to have a certain GPA or a certain identity background to apply. Check out those platforms and see if you can find a scholarship or two for which you might be a good fit.

Educational Loans

Third-party educational loans are pretty easy to get. Banks and private lenders have made an absolute killing over the last three decades on student financial debt. It is reported that Americans owe $1.78 trillion in student loan debt.

However, for some people, taking a private loan is the only option. Schools and government lenders don’t always provide the amount of low-interest, need-based aid necessary for a student to go to college. If merit aid or scholarships can’t cover the difference, you might be forced to consider taking on a loan from a private company.

The advantage of this money is that it’s generally pretty easy to get. The disadvantage is that loan rates for private loans can be between 4.23% to 11.26% annually. Compare that to federal rates, which have a rate of 2.75%. The difference is clear.

Bottom line: if you have to borrow to afford college, try to “free” money (merit aid, work-study, scholarships) first, low-interest loans (subsidized federal loans) second,  and private loans third.

Also check out: FAFSA® and Financial Aid Glossary

Final Notes

Navigating the world of financial aid can be complex, but with the right knowledge and preparation, you can make informed decisions to fund your college education.

Remember to start early, stay organized, and use available resources to your advantage. With careful planning, you can make your college dreams a reality without overwhelming financial burdens.

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