Ultimate Guide to Financial Aid in 2020 (Amounts, Applying & More)

Written by: Kristyn Pilgrim
Updated: 1/29/20

The United States National Center for Education Statistics (NCES) found that, in the decade between 2007 and 2017, the total cost of one year at a public school rose 31%, and the cost of a private nonprofit school rose 24% annually. As you begin looking at schools and applying to institutions that fit your long-term goals, you should also understand financial aid and how to get it.

Financial aid is money that helps students and their families pay for college, university, or professional school. Ideally, this money should cover tuition, administrative fees, room and board for on-campus housing and meals, books, supplies, and transportation.

There are many kinds of financial aid available, so most students combine numerous sources to pay for each year of their degree program. For your best shot at getting the financial aid you need to pay for college, you need to understand how to apply, which sources are free and which require repayment, how to manage your taxes, and what might disqualify you from financial aid.

The 4 Types of Financial Aid for College

There are four basic types of financial aid. 


Scholarships are awards that don’t need to be repaid and may be need-based, merit-based, or competition-based, like an essay-writing contest or art portfolios.

There are only a few need-based scholarships. For the most part, institutions require students to meet specific meritorious criteria, have a certain number of volunteer hours, or excel in a certain field.

Institutions all over the country form scholarship programs to support specific career fields or children in the community. Scholarships can come from:

  • A state government. 
  • Corporations.
  • Nonprofits.
  • Universities and colleges.

Scholarship money does not accrue interest or require repayment like loans do. Rather, institutions that create these programs view them as an investment in a community’s future. Students are required to meet certain standards to receive scholarship money and to continue receiving it into the future.

For example, many state-based scholarships require that students attend a public institution in that state, maintain a specific grade point average (GPA), and remain full-time students. Another scholarship may require that the student mentor younger students for a certain number of hours, as a type of community service.

If you need scholarship money due to a change in your finances while you are in school, work with your college or university’s financial aid office. They can help you understand different sources for scholarships and find money you qualify for.

You can apply for scholarships at any point in your school career, although students often apply for these programs after being accepted to a college for their first year. 


While the majority of scholarships are merit-based or competition-based, most grants are need-based. Like scholarships, grants are free money given to students to help them pay for their college or university education.

Since this source of financing is based on need, many grant-awarding programs use information from the Free Application for Federal Student Aid (FAFSA) to determine who is eligible.

The U.S. Department of Education awards grants to thousands of students every year.

  • Pell Grants: These are for undergraduate students who plan to attend college or university full-time or part-time for at least one full year. Congress adjusts the Pell Grant award each year. For the 2019–2020 academic year, the maximum Pell Grant award is $6,195. This award is entirely need-based, using the FAFSA.
  • Federal Supplemental Educational Opportunity Grants (FSEOG): This need-based grant is administered directly by each participating school’s financial aid office. Not every college or university offers this grant.

    If your school does participate, you may be awarded between $100 and $4,000 per year, depending on information from the FAFSA. The money in this grant is first-come, first-served, so not every qualifying student will receive the FSEOG.
  • Teacher Education Assistance for College and Higher Education (TEACH): Unlike the Pell and FSEOG grants, this need-based federal grant requires that students take specific classes and agree to become teachers in high-need areas after they graduate. The program provides up to $4,000 every year for students who are completing or plan to complete coursework needed to become certified teachers.
  • Iraq and Afghanistan Service Grants: This federal grant is awarded to students in need who had a parent or legal guardian die as a result of the conflicts in either Afghanistan or Iraq. The award is equal to how much Pell Grant money can be awarded in any fiscal year.

    In addition to filling out the FAFSA, you must prove that you had at least one parent or legal guardian who served in Iraq or Afghanistan after September 11 and died as a result. 

Since the federal government administers grants, the first step is to fill out the FAFSA so the Department of Education can examine your eligibility. Once you have filled this out, each school you apply to or request information from will report whether or not you qualify for these grants.


This is also a need-based program run by the DOE, which helps students find part-time work while they are enrolled in a college or university.

Undergraduate, graduate, and professional students can qualify for these programs, which are administered through the Federal Work-Study Program. Many schools participate in this need-based form of financial aid, but not all of them do, so ask your college or university about options.

Provided jobs can be on-campus, but several off-campus positions can relate to your degree field, helping you gain experience and make connections while you also attend classes. The program guarantees that you will earn at least the federal minimum wage, but each program differs so you may earn more.

The money provided by a work-study program does not have to be disbursed to you at the beginning of the academic year. Your school must pay you a least once a month though.

Unlike scholarships and grants, however, work-study money is taxable income, so you will need to use the information on the tax form sent to you from your college in January to file taxes. 

Student Loans

This form of financial assistance is the most common for undergraduate and graduate students. Unlike work-study, grants, and scholarships, student loans require the borrower to repay the money after disbursement, with accrued interest. Most loans have a contract that requires repayment within 10 to 30 years, and, depending on the source, interest rates can vary.

There are several types of student loans, provided through the Department of Education or a private institution like a bank. All of these require a payment plan on both the principal and interest.

The federal government is the largest lender for college students, offering loans like:

  • Direct Subsidized Loans. These are need-based and have a low fixed interest rate. They do not require payment while the student is in school and for another six months after graduation.
  • Direct Unsubsidized Loans. These are not need-based, but they also have a low fixed interest rate. Interest is accrued during all periods, including while you are in school.
  • Direct PLUS Loans. These are available to graduate students or parents of dependent students.
  • Direct Consolidation Loans. These combine federal student loans if you have several. They create one loan with an average interest rate, and monthly payments go to one lender, over 20 to 30 years.

Private loans have similar terms to federal unsubsidized loans but they have different benefits, interest rates, and repayment options. It is essential to use private student loans strategically to cover costs that are not covered by federal loans or other forms of financial aid. Though federal student loans are usually a better deal (ie, cheaper) than private student loans, there are some exceptions. Students with a cosigner who has very strong credit and income could obtain an interest rate lower than on a federal student loan. Private student loans (or private parent loans) might also be a competitive alternative to a PLUS loan. Make sure to consider the differences between federal and private student loans carefully before electing a private student loan. 

How to Get Financial Aid for Your Education

The first and most crucial step in receiving financial aid is to fill out the FAFSA. This form is available online, including through a mobile app, so it is easy and quick to complete.

If you are attending college in the 2019–2020 school year, the FAFSA application opened on October 1, 2018, and closes on June 30, 2020. Updates and corrections must be submitted by September 12, 2020.

The FAFSA considers your finances if you are an independent student or your family’s finances if you are a dependent student. This leads to the expected family contribution (EFC) number, which determines how much money you have to pay for school. The cost of attendance (COA) for each school you are interested in is subtracted from the EFC, so you receive a specific number value to determine how much aid you are eligible for.

Because each school has a different COA, you may be eligible for varying amounts of financial aid. You may receive more money to attend a private school than a public school, as private schools typically cost more.

The final step on the FAFSA is to list schools you have applied to, or you have been accepted to. Your FAFSA will be sent to those institutions so that the financial aid office can complete a packet of information for you. This packet will contain a list of the financial aid you are eligible for through the school, the state, and the federal government. If you are interested in private financial aid through private student loans or private scholarships, you will have to contact these organizations directly.

Individual states, colleges, universities, and financial aid institutions like nonprofits and banks have their own unique deadlines. These may be earlier than the federal deadline for the FAFSA.

Once you receive financial aid award letters from schools on your FAFSA, think about these questions:

  • How much money is the school offering you? 
  • How much of this money do you need to pay back? 
  • How much of the money is considered taxable income? 

Financial advisors recommend that students take as much free money as possible. It is important to note that scholarship and grant money you receive that is left over, once you have paid your tuition and associated expenses, might be considered taxable income.

According to the Internal Revenue Service (IRS), taxable income from scholarships or grants is:

  • Any amount used for incidental expenses like rent off-campus.
  • Money received for work, like being a teaching assistant (TA).

Any scholarships and grants you receive that cover tuition, books, and supplies are free money that you do not have to pay back or pay taxes on. Accept these income sources first. Then, if you need additional finances, work-study programs and student loans are great resources.