What Are the Differences Between Federal, State, and Institutional Financial Aid?

Ana-Marcela Lopez / Colleges of Distinction »

The United States is on track to hit $2 trillion in total student debt, with recent figures coming in at $1.73 trillion. Along with the constantly rising costs of college tuition, this means that those looking to enroll in an undergraduate or graduate program are now seeking out more financial aid than ever before. 

If you’re looking to enroll in a program, keep reading to learn more about your financial aid options. It pays to stay informed on the financial resources available to you, whether they come from the federal government, the state, or your school itself. 

Federal Financial Aid

The U.S. government maintains a budget that it uses to award federal financial aid to students. Applicants in all states, therefore, have the same access to federal aid programs.

There are three types of federal aid available:

  • Grants
  • Loans
  • Work-study programs


A grant is a source of free money that, in general, never needs to be repaid. The federal government offers several types of need-based grants. 

The most common among these is the Pell Grant. The Pell Grant is for those with exceptional financial need, as determined by the student’s FAFSA. Additionally, if you have a parent or guardian who died serving in the military in Afghanistan or Iraq, you may be eligible for even more funding from the Pell Grant.

Receiving a Pell Grant doesn’t affect the other federal financial aid available to you.

The government also has the TEACH Grant for students who commit to teaching for four years at a low-income school after they graduate.


The federal government offers several different loans which, unlike grants, will eventually need to be repaid over time after you graduate.

Zully Rodriguez, Associate Director of Student Financial Aid at University of Hartford, explains that “Federal Direct Lending is a federal family loan program allowing the student and/or parent to borrow directly from the Federal Government… When a student borrows a loan, the student must repay the loan as well as interest as it accrues.”

Among these are Direct Subsidized and Direct Unsubsidized loans, Subsidized loans are need-based aid. Here, the government pays the interest on the loan while you’re in school. Unsubsidized loans are not need-based. Because of this, interest begins to accrue immediately.

Students may also access Direct Consolidation Loans, which help students combine all of their federal loans into one account for easy access. 

Finally, the U.S. Department of Education also offers Direct PLUS Loans, which are reserved for graduate and professional students or the parents of undergraduate students. These loans are not need based, but they do require a credit check for applicants to be considered.

Work-Study Program

Ms. Rodriguez at University of Hartford explains that “Federal Work-Study (FWS) is a form of financial assistance, based on the results of your FAFSA (Free Application for Federal Student Aid). Its purpose is to help students cover educational expenses through part-time employment during the academic year. Students are paid for hours worked through a paycheck.”

The aid you can receive from a work-study program depends on:

  • When you apply
  • Your school’s funding level
  • Your financial need

How To Qualify for Federal Aid

If you want to apply for federal financial aid, you need to meet the following criteria:

  • Be a US citizen or eligible noncitizen 
  • Submit your Social Security number
  • Attend an accredited education program

You also need to complete the Free Application for Federal Student Aid (FAFSA). Submitting your FAFSA close to October 1 will increase your chances of qualifying for the most aid. 

State Financial Aid 

Individual state governments also award financial aid. You can use your FAFSA to apply to these programs. In fact, when you submit your FAFSA, the information automatically goes to your state’s student aid agency. State programs mainly target residents going to school in the same state; however, some forms of aid are available for out-of-state students too. 

Even though financial aid programs vary by state, most states offer at least one grant or scholarship program. 

It is important to note that some programs require a different application in addition to the FAFSA, and most have an annual deadline. Further, some areas have a state or regional tuition exchange. This means you can attend college in a different state without paying out-of-state fees. 

One example is the Midwest Student Exchange Program, which allows students in the Midwest to receive lower rates when going to colleges in the region, not just in their current state of residence. 

Institutional Financial Aid

“Many schools offer financial aid from their own grant and scholarship funding,” says Nataly De La Peña, Director of Student Financial Services at Marymount California University. “These awards can be need-based or merit-based. For instance, students might qualify for institutional aid because of their academic accomplishments, community service, or athletic performance.” At Marymount California University, for instance, all admitted students are considered for merit-based scholarships based on the strength of the admission application as well as their demonstrated financial need. 

Similarly, the University of Hartford offers institutional scholarships to admitted students based on their academic merit, artistic talent and performance, and program-specific interests. While the FAFSA is sufficient for many need-based considerations from individual schools, some colleges require you to fill out the College Scholarship Service (CSS) Profile to qualify. 

Other Financial Aid Options

The truth is, even after federal, state, and institutional financial aid, you still might need more money to attend college. The good news, however, is that you still have more funding options to explore. 

Private Scholarships

Many businesses and organizations offer private scholarships to students all around the country. Because these are independent entities, their applications and requirements can vary greatly. You’ll find that some are very specific, including ones for students with extensive volunteer experience, hobbies, and demographic background. 

Private scholarships have the ability to offer a lot of money to students. That said, these opportunities are usually more competitive and scarce than other forms of aid. 

If you receive a private scholarship, you want to check with your university to see how they will process it. Some colleges deduct the aid you receive from a private source from the amount of grant or scholarship it gives you. 

Private Student Loans

The last option you have is to take out a private student loan. These loans remain popular even though they have a terrible reputation. While it is true that they have higher interest, they remain quite accessible to students and families. 

There are many private student loan vendors available, so if you choose to take out private loans, you must do your research. You want to get the best rate possible. 

Further, it’s a good idea to look for a loan that allows you to start making payments after you graduate rather than while you’re still in school. However, this isn’t always possible. 

Apply for Financial Aid Today

Applying for all types of financial aid you are eligible for will help lessen the costs of attending college. Because education is expensive, it’s worth your time to sort through your options and fill out the necessary applications.

For more information about all things college, check out our Advice section to answer all your questions. You’ll find hundreds of resources waiting for you there.