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What is federal financial aid?

By Elizabeth Exline

At a glance

  • Federal financial aid is money students can use to pay for postsecondary education at colleges, universities and career schools.
  • Federal financial aid can include grants, direct subsidized loans and direct unsubsidized loans, and work-study programs, as well as tax credits for education and aid for military families, but not private loans.
  • Federal loans must be repaid but grants usually do not.
  • Learn more about federal financial aid, including details on the Free Application for Federal Student Aid, at University of Phoenix.

The experience of going to college varies from person to person. Where you go, when you go, why you go — all of these factors are as individual as the students in a graduating class.

Yet, while the differences are many, nearly everyone asks the same question at least once: How am I going to pay for this?

Enter financial aid. Financial aid is money that students can use to pay for higher education, whether that’s at college, a university or a trade school. Its sources are equally diverse: Financial aid can come from the federal government, state agencies, educational institutions and private sources.

Here, we’ll break down the ins and outs of federal financial aid, including how it works, when you have to repay it and what types of federal financial aid are out there. Remember to always consult with an accountant or financial representative before making a decision on how to pay for school.

How does federal financial aid work?

Ask and ye shall receive? When it comes to the federal financial aid award process, it turns out there are a few extra steps.

The first of these is filling out the Free Application for Federal Student Aid (FAFSA®). As its name suggests, submitting the form is free, and it’s how the U.S. Department of Education determines what aid a student is eligible for. (Many state agencies and schools also use the form to determine what aid to award.)

Students have to complete the FAFSA every year to be considered for financial aid. The FAFSA generally becomes available to students every Oct. 1, and the deadline to submit the FAFSA is June 30 each year. It’s also worth noting that each college and state school that uses the FAFSA to determine its distribution of aid usually has its own deadlines, so it’s a good idea to complete the FAFSA early.

Students wishing to pursue other aid opportunities, such as a scholarship, may do so through their school of choice or through an independent organization. Students may have to provide additional information and applications to be considered.

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What's financial aid good for?

The obvious answer is tuition, but going to school costs more than what you pay for classes. Students may want to apply any funds remaining after tuition to help cover expenses such as food and housing, books and supplies, or other education-related expenses. 

Grants and student loans can usually be applied to those expenses after tuition is covered. While financial aid can help cover expenses, it is important to borrow responsibly and only borrow for the expenses you truly need. For more information on how to be a responsible borrower, visit the U.S. Department of Education Federal Student Aid website.

Schools generally apply grant and loan money to tuition first. Any remaining funds are then paid to the student to use for education-related expenses. In the event you don’t need the extra funds, you can cancel all or part of your loan within 120 days of receiving it without incurring interest or fees. Federal student loans can also be repaid in advance without penalty. 

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Types of federal financial aid

Just how many types of federal financial aid are out there? Let us count the ways, er, types.


Grants are funds that can be applied to a student’s education, and the student doesn’t usually have to pay them back. (More on that below.)

Most federal grants are based on financial need, but they are available from multiple sources, including state agencies, nonprofit organizations and the U.S. Department of Education, and are generally administered by the financial aid office at schools and universities.

One of the most common federal grants is the Pell Grant, which is awarded to students who demonstrate “exceptional financial need” and who have not earned a bachelor’s degree or higher.


As with any other loan, student loans accrue interest and have to be paid back. Loans can be helpful for students looking to fill the gap between what college costs and what they can afford (either out of pocket or with scholarships and grants).

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There are numerous types of federal student loans out there. Direct Subsidized loans are need-based loans offered to eligible undergraduate students, for example, while Direct PLUS loans are available to graduate students, professional students and parents of dependent undergraduate students.

Direct Unsubsidized loans are available to eligible undergraduate, graduate and professional students, but eligibility is not based on financial need.

The U.S. Department of Education serves as the lender for all these loans, and you will repay your loans to a servicer assigned by the U.S. Department of Education.

More resources

Aside from the U.S. Department of Education, the federal government offers additional aid programs for eligible military families. Details about these and other options can be found on the Federal Student Aid website.

Do I have to pay back financial aid?

The answer to this all-important question depends on the type of aid you accept. Most grants, for example, don’t have to be repaid except under certain conditions. (These generally pertain to situations when a student fails to complete the semester or enrollment period or to students who provided false information during the application process.)

Federal loans, on the other hand, do have to be repaid. Other notable differences of federal loans include:

  • The interest rate is fixed and usually lower than that of a private loan.
  • You don’t need a credit check or a cosigner for most of them.
  • Forgiveness programs exist for public service jobs and are available for loan borrowers who meet the criteria. For more information, click here

Public service loan forgiveness: What you need to know   

The other thing to bear in mind is that all of this is just what’s available through federal financial aid. State agenciesnonprofit organizationsschools and even companies may offer more options, from tuition assistance to scholarships.

So, while everyone at some point asks, “How am I going to pay for this?” the answer can depend on who’s doing the asking.

Financial aid at University of Phoenix

University of Phoenix (UOPX) provides students a straightforward approach to paying for school so they can focus on what’s important: their education, career and family. The University offers fixed tuition, so students pay one flat rate from the day of enrollment to graduation.

In a world of rising costs, you can count on predictable, transparent tuition. UOPX students have a predictable and transparent view of their tuition costs. 

Other ways University of Phoenix can help students save time and money on their degree include:

  • College credit for personal and professional life experience, such as on-the-job training and specific parenting skills
  • Scholarships for eligible applicants
  • Credits for eligible military training, national exams and transfer credits from institutionally accredited universities or colleges
  • Tuition assistance benefits for participating employer alliances

If you’re looking for ways to save time and money on a college degree, check out the University of Phoenix’s Savings Explorer® tool.

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