Financial aid is a broad term encompassing all the different ways to pay for higher education. Financial aid typically falls into three broad categories: scholarships and grants, federal student loans, and private student loans.
Scholarships and grants.
Scholarships and grants are the best form of financial aid because in all but a few cases, you never have to repay the money you receive. Scholarships tend to be awarded based on demonstrated financial need or applicant’s merits, while grants tend to be awarded based on field of study or focus (with the exception of federal grants, which are need-based, such as the Pell Grant). For this guide’s purposes, the terms will be used interchangeably.
Federal student loans.
Federal student loans are student loans that are backed by the U.S. Government. They typically have fixed interest rates and must be repaid over a period of ten years. Federal student loans also offer borrower protections such as deferments and forbearances that allow borrowers to temporarily suspend their payments, as well as loan forgiveness or loan cancellation. Federal student loans may be issued by the government or by a private company such as the Student Loan Network.
Private student loans.
Private student loans are loans that are backed and issued by private companies. They typically have variable interest rates and usually have less favorable terms than federal student loans. Private student loans are often used to “fill the gap” between federal financial aid and any remaining expenses.
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