A scholarship is generally awarded to a student from a private funding source based on financial need or to award a student's special talents in academics, music, athletics, or some other area. Places to check for scholarships include your parents' employers, religious organizations, local foundations, and civic groups. Scholarships are quite competitive, so start at least a year in advance. Ask your guidance counselor to help you get started, or check out the many Internet resources that help students find scholarships. Scholarships do not have to be repaid.

A grant is a funding award that does not have to be repaid. All grants are based on financial need and are basically gift money from some funding source (usually the government, your school, or a private entity).

The major grant program from the federal government is the Pell Grant (for undergrads only). Pell Grants are reserved for the neediest students. The maximum Pell Grant is $3,000 for this school year. Supplemental Education Opportunity Grants are also available. These funds are disbursed at the campus level, and are also reserved for very needy students. The State Student Incentive Grant program is a federal program that matches state grants to students. Again, it is reserved for very needy students. Generally speaking, it is difficult to receive grants unless your family is very needy.

A student loan, on the other hand, must be repaid. In recent years, much more financial aid money is given as loans rather than as grants. It is therefore very likely that you will have to repay at least some of your aid money. Even though you must repay loans, student loans are often referred to as student aid. Most loans allow for long repayment terms, so don't shy away from accepting this important form of student aid.

About $40 billion in student financial aid available in the United States each year comes from the federal government. "Federal" or "Government" student loans are administered and disbursed through two different programs. The (1) Federal Family Education Loan Program, or FFELP, uses a network of commercial lenders to provide loans to students. If your school participates in this program, your award letter will contain a list of approved lenders that your school suggests you use to provide your loan. If your school participates in the (2) Ford Direct Lending Program (FDLP), your lender is the federal government itself. Either way, you'll be getting a "government backed" loan to help you pay for school.

Federal loans can either be subsidized or unsubsidized. If you have a subsidized loan, the government picks up the tab for your interest while you are in school. If your loan is unsubsidized, you pay the interest yourself. Subsidized loans are generally given to students with greater demonstrated need.

FFELP Loans
The two most common government-sponsored education (FFELP) loans are Stafford loans and PLUS loans. Stafford loans are given to students. The interest rate for Stafford loans is capped at 8.25 percent. There are strict limits on amounts that can be borrowed through this program-- loans are limited to $2,625 the first year, $3,500 the second year, and $5,500 the third and fourth years (and fifth year if necessary). Graduate student borrowing levels are set at $8,500 per year. Repayment of Stafford loans begins six months after students complete school.

PLUS loans, on the other hand, are given to parents. There is no limit to PLUS borrowing, but repayment begins immediately after the loan is taken out. There is some debate over whether students or parents should shoulder the loan burden for educational loans. There are advantages and disadvantages either way, so you should talk to a financial advisor to find out the best formula for your family.

Another government loan program is the Perkins loan program. Perkins loans are similar to Stafford loans in that they are loans from the government that must be repaid. However, Perkins loans are administered through your school directly. Perkins loans come from revolving federal funding at institutions. As students pay back their loans, the funds are re-lent to others. Each institution gets a small additional capital contribution each year from the government to be distributed as Perkins loans, and can allot it to students as it sees fit. Perkins loans are need based, and presently carry a lower interest rate than Stafford loans. Additionally, the Perkins program contains some forgiveness programs not offered to students who have loans through the FFELP or FDLP. With a Perkins loan, your school is the lender. But some institutions contract to servicer, so you may end up writing checks to another entity (like a bank) when your repayment begins.

Work-study
The federal work-study program allows students to earn money while in school by working at their school or at another approved (possibly community service related) job. The money comes in through regular paychecks rather than in one lump sum. Therefore, work-study money is usually used for personal expenses rather than tuition payment, which must be paid at once.

Awarding Criteria
Most types of financial aid programs--including almost all government programs--are need-based, so the amount of aid you receive depends on your financial situation. Other sources of financial aid are merit-based, which usually depend on academic, artistic, or athletic talent, and may use your grades, test scores, hobbies, and special talents as awarding criteria.

Most sources of financial aid require that you be enrolled at least half time, though some awards are restricted to full-time students. There may be other restrictions as well. For example, most federal aid programs are restricted to US citizens, permanent residents, or eligible non-citizens. If you are a US citizen, male, and have reached age 18, you must be registered with Selective Service to receive federal aid.

When you compare your aid package with your tuition bill, you are likely to find a difference between how much you are being given and the cost of your education. This is your "expected contribution." Unless you win the lottery or have a healthy savings account, you will probably need to use private or alternative loans to help with this part.