Student Loans and College Financial Aid Basics

Loans, grants, scholarships and more—how to prioritize your child’s college financial aid sources.

If you have a high school student considering college, congratulations! It’s an exciting time in their life and yours. But, it can be overwhelming as well. While you and your student may be focused on getting into the college of their dreams, it’s important to consider how you’ll pay for it all.

Here are 5 steps to get you started

1. Determine the potential cost of the schools your student is considering

Every college is required to provide a ‘net price calculator’ on their website, which gives you an estimate of what your first-year student can expect to pay based on your income and other factors. While not exact, these can be valuable planning tools.

2. Understand the different types of financial aid

Free financial aid

  • Grants
    • Based on financial need
    • Federal grants include Pell Grants and others; may also come from state, college, or other sources
  • Scholarships
    • Based on merit and other factors, including academics (grades, test scores), talent (music, athletic, etc.), interest (STEM degree, etc.), or other factors (ethnicity, clubs, etc.)

Financial aid that must be repaid

  • Work-study Jobs
    • Based on financial need

    • Must be willing to work part-time during college

  • Loans
    • Federal (such as Stafford Loans) vs. loans from private lenders

    • Subsidized (based on financial need) vs. unsubsidized (not based on need)

    • Student loans vs. loans taken out by parents to pay for their student’s college expenses (such as the Parent PLUS Loan or private parent student loans)

  • Income-Share Agreements (ISA)
    • New (but limited) program, where your student agrees to pay a percentage of their future income over time in exchange for tuition

3. Fill out the Free Application for Federal Student Aid (FAFSA)

The information you provide qualifies your student for need-based funding and determines eligibility for federal grants and loans. Once your student submits the FAFSA, you’ll get a report that details your expected family contribution (EFC), which is used by each school to calculate the amount of aid your student is eligible to receive. Don’t make assumptions about whether your student will or won’t qualify for aid. It’s complicated, so we encourage everyone, regardless of circumstances, to file the FAFSA every year.

4. Ask the Financial Aid office at your student’s college about additional financial aid options

Colleges offer financial aid in many forms. For example, your student may qualify for a scholarship if they attend your alma mater, or there may be grants available for students pursuing certain majors. Many of these options require forms in addition to the FAFSA in order to apply, so help your student manage the details and deadlines of this process.

5. Evaluate and prioritize your funding sources

Since there are no payback requirements, your student should apply first for grants and scholarships. If you need to apply for loans, students should apply for federal loans first because they usually have lower interest rates and better payback terms. Student loans from private sources are another option, although most require a co-signer. When evaluating parent loans (loans you as the parent take out to pay for your student’s college), your best options are less clear. For example, federal parent PLUS loans may have higher interest rates and fees than loans to students, and private parent student loans (such as an Alaska USA line of credit) may have better terms than the PLUS program or other parent loan options. Set aside time to do some serious homework here.

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