Financial Aid 101 – Basics of Federal Aid

Financial aid gives me a huge headache. I did not fully understand my loans when I got them - I wish I knew more when I got them! This is a must-read for anyone who has federal aid or plans to get it!Do you have student loans, grants, scholarships, or financial aid?

If so, you have something in common with a lot of students and graduates across the United States!

Yay for not being alone!

Now, raise your hand if you aren’t quite sure what your financial aid package includes or means.

Yay for not being alone!

Student loans are huge in the United States because as the price of attending college increases, so does the amount of financial aid provided to students.

It’s a vicious cycle.

The average undergraduate graduates with at least $30,000 in debt.

That’s an average.  I know that some of my friends owe at least five times that amount for their undergrad.

There is no shortage of opinions on student loan debt, but owing someone the equivalent of a nice, new sedan can stress out anyone.

Whether you have student loans, are probably going to have student loans, or are currently paying off your student loans, you should have a basic understanding of what all of the terms mean.

If you don’t understand your federal financial aid, let this be your guide.

We can get through this together.

Fabulous (and sometimes frightening) Federal Aid

Uncle Sam has recognized that students need a little help paying for college.  From housing, to fees, to tuition, to books, the costs add up.

I bet you already knew that was true.

The government provides grants and loans to qualified students who complete the FAFSA (Free Application for Federal Student Aid).

Depending on what information you provide on the FAFSA (do us all a favor – be truthful on your FAFSA), you can earn or be eligible for any of the following:

  • Loans
  • Grants
  • Work study
  • Scholarships

The government has conveniently created a website with all of this information.

Have a few hours?  Read the information on the site.

Have a few minutes?  Here is a summary of federal aid:


You need to repay this kind of aid.  And yes, the government will make sure that you – or someone – will pay these back no matter what.

  • Direct Subsidized loans

Subsidized loans from the government are proof that the government understands that you are probably a broke college student.

While you are still registered as a full-time or half-time student, the government pays (or subsidizes) the interest on these loans.  That means that when you borrow $5,500, you will still owe $5,500 when your loans go into repayment.

That’s right – you don’t have to worry about paying anything on subsidized loans until your repayment, and the amount won’t increase while you’re still a student.

These are like the relative happy place of the student loan world.

  • Direct Unsubsidized loans

Unlike a subsidized loan (the nice, mature, older sibling), an unsubsidized loan is like the sassy younger sibling that’s a little needy.

(Full disclosure, I’m the baby in my family and can admit to things like that.)

These lovely little loans accrue interest while you’re still in college.


In normal people terms, when you borrow $5,500 in unsubsidized loans, you will owe more than $5,500 by the time you graduate.

Like a petulant child, these loans will throw a fit when you ignore them and try to make you miserable.

Sound crazy?  Check out this calculator example from FedLoan Servicing:

Loan Info
Paying $54 a month during school and beyond to save $1,000? Yaaasss.

So, no matter what year you are in school, check in on your unsubsidized loans to see what their current balance is.

You do NOT have to make payments on these loans when you’re in school (you can let the interest capitalize, or be added to the amount you owe).

However, as you can see above, by paying off the interest on a $5,500 loan instead of letting it capitalize, you save over $1,000 in interest over the life of the loan.

Wouldn’t Future You love that?

It’s just important to be aware of what is going on.

Awareness is the key to eventual triumph!

  • PLUS loans

For graduate students and parents of undergraduate students only, these loans operate a lot like unsubsidized loans.  They accrue interest.

If you can’t come up with the money to cover certain expenses outside of tuition, it is possible for parents or graduate students to borrow up to the school’s estimated cost of attendance through a PLUS loan.

Grants v. Scholarships

Who doesn’t love free money?

Grants and scholarships are the best parts of a financial aid package!

Grants are based on need, whereas scholarships are merit-based.  Both are likely based on you maintaining your status as a full-time student in good academic standing at your university.

Also, with grants and scholarships, you do not need to pay these back, as long as you maintain all of the requirements (good academic standing, minimum GPA, certain number of credits, not dropping out, thank-you letter… whatever the requirements are).

Since the Federal Government cares about financial need, grants are available from the government for students who qualify based on need.

Scholarships?  Not so much from Uncle Sam.

Let’s talk briefly about a grant!

  • Pell Grant

We all love the Pell Grant.

The Pell Grant is for students with demonstrated (and significant) financial need.

If this is a part of your student loan package, you are eligible to apply for oodles of additional aid and scholarships, especially for study abroad.

Work Study

Another way to pass time and earn some cash while in school is with work study.

This is, as with the other programs, based on your FAFSA (and when the government receives it…).  The feds will determine your total amount per semester, and you will be employed hourly either on- or off-campus.

You will be paid with a paycheck so you can still buy all the things.  Maybe within reason.

Once you have fulfilled the number of hours for a semester and received the full grant amount, you will not be paid anymore.

So please don’t go over your allotted hours.

What this means for Studying Abroad

Whew – how are you feeling now?  Overwhelmed?

Excellent.  That means that you’re getting somewhere!

For study abroad, depending on the program you choose, you can use your financial aid.  As I have said before, “plan early, go often!”

Here are some things you need to ask your financial aid advisor or study abroad advisor about your financial aid and study abroad:

  • What aid can be used for your program?
  • How can you avoid losing your funding (minimum grades, credits, essays…)?
  • What do you need to do in order to ensure your aid can be used for your program?
  • Are there are any forms you need to fill out?
  • What is the reality of scholarships for your desired program / location?

Let’s talk about study abroad scholarships for just a second.

Here is where I burst your bubble a teeny bit.

If you are hoping to study abroad in any of the main study abroad destinations, or traditional locations (think – Western Europe and Australia/New Zealand), your chances of getting a scholarship are not particularly good.

Why?  Because so many students want to study in these locations.


Many program providers do have scholarships for their programs, but students who have financial need generally have priority.

For scholarships outside of program providers, most are based on financial need AND  require additional stand-out features, such as studying in a non-traditional location or having an internship related to your field of study.

Bonus points for STEM or immersing yourself in a location with a language that is deemed a “critical language.”

If the price of studying abroad is prohibitive, I encourage you to look to a more non-traditional location or program.  Besides, why are you focusing on a location anyway? 🙂

The bottom line – the more you know, the more prepared you will be for financial well-being with your federal financial aid!

Is there anything you wish you knew about financial aid before you got to college?  What advice do you have for students who will be entering college this fall?  Write in the comments below!

Related Reading:
10 Ways to Save Money While Living Abroad
Prioritize Travel Saving (+ Calculator)
9 Tactics to Survive the Pre Semester Panic
5 Reasons Why Students Don’t Study Abroad
Study Abroad Guide: Preparation Phase

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