Types of Student Loans and Funding Options for College

Navigating the financial aid process and paying for college takes work and, at times, can be overwhelming. To make it easier, Focus Federal Credit Union breaks down the types of student loans and funding options for college. 

What is Financial Aid?

College financial aid provides funds to cover higher education costs. 

There are four main types of financial aid:

  1. Federal and private loans
  2. Grants
  3. Scholarships 
  4. Work-study programs

Each one aims to make college more affordable. 

Most federal aid depends on financial need, while assistance from other sources is need- or merit-based. Officials determine need-based aid by your ability to pay for college as calculated by the Free Application for Federal Student Aid (FAFSA). An institution, college, or organization awards merit aid to a student for a specific talent or academic ability. Officials don’t base merit on financial need. 

A student may qualify for multiple types of aid, depending on their financial need and academic merit. They may use these multiple sources in a combination of ways to pay for college.

Types of Student Loans and Funding Options for College

The largest provider of student financial assistance is the federal government. The U.S. Department of Education manages and distributes the aid. State governments, schools, private organizations, and lending institutions are other sources of financial assistance. 

Federal Aid

The federal government offers students three types of financial aid — grants, loans, and work-study. We’ll explain each type of federal aid below. 

1. Federal Grant Programs

You can use grants to pay for school and school-related expenses. They are need-based and aren’t usually repaid.

There are four federal grant programs: 

  1. Federal Pell Grant. This grant is available to undergraduate students with high financial needs. Grant amounts can change annually. The maximum award is $6,495 for the 2021–22 award year (July 1, 2021, to June 30, 2022). 
  2. Federal Supplemental Educational Opportunity Grant (FSEOG). This grant goes to undergraduate students with exceptional financial needs with priority given to Federal Pell Grant recipients. The financial aid office at each participating school administers the program. Applicants can receive between $100 and $4,000 annually.
  3. Teacher Education Assistance for College and Higher Education (TEACH) Grant. This grant is non-need-based. It provides up to $4,000 a year to students who agree to teach after graduation. They must commit to teaching for four years at an elementary school, secondary school, or educational service agency serving low-income families. 
  4. Iraq and Afghanistan Service Grant. This grant is non-need-based. It is for children of members of the U.S. armed forces who died in military service in Iraq or Afghanistan after 9/11.

2. Federal Loan Programs 

In addition to grants, many students take out loans to pay for college. Unlike grants that you don’t pay back, you must repay loans, along with interest. Financial need is not a requirement. Loan repayment doesn’t begin until you’ve completed school or dropped below half-time enrollment. 

Types of federal loans:

  • Direct Subsidized Loans. This loan is for undergraduate students who have financial needs. The William D. Ford Federal Direct Loan Program allows you to borrow up to $12,500 annually. Your college or university determines the loan amount, and it cannot exceed your financial need. 
  • Direct Unsubsidized Loans. These loans are for undergraduate, graduate, and professional degree students. Graduate and professional students may borrow up to $20,500 per year.
  • Grad PLUS Loans. This loan can cover any costs up to the full cost of attendance. To qualify, you must enroll at least half-time at an eligible school in a graduate or professional program, pass a credit check, and meet the general eligibility requirements for federal student aid. 
  • Parent PLUS Loans. This loan allows parents of dependent students to borrow money to cover any costs not already covered by the student’s financial aid package, up to the full cost of attendance. These loans are the financial responsibility of the parents, not the student.

A mother and daughter sit at a desk looking at a woman whose back is to the camera.


3. Federal Work-Study Program

Work-study is a federal program in which students with financial needs work part-time for their school. In return, they can apply the money they earn to their educational costs. Students receive at least federal minimum wage, but schools can provide higher pay. There is a limit to the number of hours a student can work each week. Money earned can be used for tuition or to offset the costs of food, housing, books, and study materials.  

State Aid

In addition to federal aid, you should look to your state for financial assistance. Each state has rules for administering aid to in-state students and offers various student loans and college funding options. 

Students attending a school in their home state traditionally receive in-state tuition rates. These rates are less than what the school charges to those from out-of-state. 

In-state tuition isn’t the only form of aid. There are also grants and scholarships for qualified students. 

Oklahoma offers two need-based financial grants to residents:

  1. Oklahoma Tuition Aid Grant (OTAG). This grant program is for full- and part-time students seeking an undergraduate degree. Award amounts are up to $1,300 per academic year.
  2. Oklahoma Tuition Equalization Grant (OTEG). Open to full-time undergraduates who have not earned a bachelor’s degree whose family income is $50,000 a year or less.  

Institutional College and University Aid

Colleges and universities have an endowment they pull from each year to provide scholarships and grants to eligible students. Institutions typically offer need-based grants, merit-based grants, and scholarships. 

Merit-based grants and scholarships vary by school. Officials base awards on specific requirements such as academics, artistic talents, athletics, ethnicity, or first-generation students. The college financial aid office determines eligibility for grants and scholarships. 

Private Aid

As tuition increases, more students rely on private aid as an option to help pay for school. 

Private Student Loans

Private student loans come from banks, credit unions, companies, and even individuals. Interest rates on private loans are higher than federal loans and depend on the borrower’s credit score. 

Repayment often begins shortly after taking out the loans. All interest is the responsibility of the borrower. A student taking out a private loan will usually require a co-signer. An advantage to this option is it allows you to build your credit while paying for school.

Private Scholarships

Private scholarships are funds offered by corporations, non-profits, associations, and other agencies, to help with college costs. Scholarships can range from a couple hundred dollars to thousands of dollars. Qualifications vary. Officials base them on need, achievement, affiliation, or other criteria. Check for opportunities with your high-school counselor, civic groups, and community organizations. 

When and How to Apply for Financial Aid

Financial aid applications are going to keep you busy during the fall of your high school senior year. To apply for federal student loans, the first thing you need to do is complete the Free Application for Federal Student Aid (FAFSA®)

FAFSA also determines your eligibility for other federal student aid like grants and work-study. You can begin filling out the form as early as Oct. 1 for the following academic year. The deadline for the FAFSA is June 30. You will have to fill out the FAFSA form annually to remain eligible.

You typically receive your financial aid letter in early spring, usually after or at the same time as a college acceptance offer.

Deadlines for private grants and scholarships vary. Do your research to know if you qualify and track deadlines.