The Four Main Sources of Grants and Scholarships for College

on August 30, 2017

To shrink the cost of college, you need to know about the main sources of free money for college.


You can trace the biggest pot of money to the federal government but that won’t be the solution if you are searching for college scholarships.


Here is the lineup of the four major types of free college money and the percentage of total grants and/or scholarships that comes from each source:

  • Federal grants: 47 percent
  • Scholarships and grants from colleges: 35 percent
  • State grants and scholarships: 8 percent
  • Private scholarships: 10 percent

When searching for college money, it’s important to know where to look for help and what grants and/or scholarships you might qualify for.


Here is a breakdown of what each type of assistance offers:


Federal Aid (47 percent)


If you are looking for merit scholarships from the federal government, you’re going to be out of luck. There are none. Almost all grants the federal government dispenses require demonstrating financial need.


To qualify for any federal grants, you must complete the Free Application for Federal Student Aid (FAFSA).


Here are the two major grants:


Pell Grant (23 percent)


By far, the Pell Grant is the biggest federal grant. The current full grant, which is adjusted annually, is $5,920. Most students who qualify for the full amount have household incomes of less than $60,000. It is possible to qualify for a partial grant.


Federal Supplemental Educational Opportunity Grant (0.6 percent)


The FSEOG is available for students who have what the government characterizes as “exceptional financial need.” If you don’t qualify for a Pell Grant, you won’t be eligible for this grant that ranges from $1,000 to $4,000 annually.


Unlike the Pell Grant, the FSEOG will not be available on all campuses and the money can run out. Consequently, it’s important that families file the FAFSA on October 1 or as soon as possible after that date.


Education Tax Benefits (13 percent)


The federal government provides several education tax benefits, which are claimed on your federal income tax return.


Some are based on amounts spent on tuition and textbook costs. These include the American Opportunity Tax Credit (AOTC), Lifetime Learning Tax Credit (LLTC) and Tuition & Fees Deduction.


Of these, the AOTC yields the greatest tax savings per dollar of qualified higher education expenses, but it is limited to four years. The LLTC is used mainly by graduate and professional students and continuing education students after they’ve exhausted eligibility for the AOTC.


Another popular education tax benefit is the Student Loan Interest Deduction, which provides an above-the-line exclusion from income for up to $2,500 in interest paid on federal and private student loans. 


Veterans and Military Student Aid (10 percent)


The federal government provides several types of military student aid to members of the U.S. Armed Forces and veterans. These include ROTC Scholarships, the Montgomery G.I. Bill, the Post-9/11 G.I. Bill, the Yellow Ribbon Program, U.S. Armed Forces Tuition Assistance (TA) and the Student Loan Repayment Program.


Federal Loans


If you aren’t eligible for federal grants, you can turn to federal loans.

  • The Direct Loan is strictly for students and is available for those who file the FAFSA and are attending college at least half time. During a five-year period, the majority of students can borrow a maximum of $31,000.  
  • The PLUS Loan is designed for parents of undergraduate students, as well as graduate and professional students. Parents can borrow the difference between the cost of the college and what their child received in financial aid.

There is little underwriting for these loans, which can make it easy for people to over-borrow.


State Aid (8 percent)


Almost every state education agency has at least one grant or scholarship program available to state residents. Some offer several programs.


States in the South are more likely to award money based on grade point average and possibly test scores. States on the East and West coasts are more likely to provide awards based on financial need.


An easy way to learn more about aid programs in your state is to head to the website of the National Association of Student Financial Aid Administrators (NASFAA).


On the NASFAA website, you can find links to your state aid programs by following these steps:


Click on Students, Parents & Counselors link. Then click on Financial Aid in Your State link. Next, choose the State Financial Aid Programs link. Once you call up the U.S. map, click on your state.


Some state programs, such as those in California and New York, have centralized systems, which means that awards are set by state-level formulas. In other states, the government sets basic criteria but they allow public universities to exercise some discretion when making the awards. States in this category include Texas and Virginia.


Institutional grants and scholarships (35 percent)


For many families, money from the colleges themselves will represent the biggest source of help in tackling college costs.


The vast majority of colleges dispense both grants and scholarships.


Universities give out grants to students who have demonstrated financial need. Colleges award merit scholarships to students regardless of whether they need financial help or not.


Here is how the award process often works:


A student applies to a college and its admission office decides whether to accept the applicant. If the college gives out merit scholarships (and many do), the decision typically will be made during the acceptance process on whether the student will receive a merit award, usually based on the student’s grades and test scores. This often is done before the college knows if a teenager would qualify for need-based aid or not.


When the financial aid form is reviewed, the admission staff decides whether a child still needs assistance even after taking merit scholarships into consideration.


Sometimes a merit scholarship covers the student’s financial need as determined by the financial aid formula. Other times the student needs more money.


If the college is willing to give additional assistance, it would award a need-based grant on top of the scholarship. Whether an applicant will receive extra money can depend heavily on how generous a college is with its aid practices as well as how excited (or not) the institution is about this particular applicant.


The most highly ranked research universities and liberal arts colleges give no merit scholarships. Their aid is exclusively in the form of need-based grants.  Consequently, if you don’t qualify for need-based aid, you will pay full price at these institutions. These are the institutions, however, that provide the best financial aid packages.


The vast majority of colleges are going to vary in terms of how generous they are with need-based grants and scholarships. Because of the wide variety of assistance that you can encounter, it’s important to use a net price calculator when evaluating the generosity of any college.


These calculators need to be used before applying anywhere.


Here is a previous article that explains why using net price calculators are critical:


Families Aren’t Using This Cost-Busting College Tool


Private scholarships and employer grants (10 percent)


Outside groups such as foundations, civic groups, companies, religious groups, professional organizations and charities award private scholarships.


Many people assume private scholarships represent the biggest source of college money, but as you’ve learned, they are actually among the smallest sources. Unlike other sources, these scholarships typically last for just one year and most of these awards are under $4,000.


The odds of winning a scholarship are about one in eight. Prestigious scholarships can have odds to one in 250 or one in 500.


Students who are actively involved in their communities typically enjoy a better chance of winning one of these scholarships. Being a solid writer can also boost chances when an essay is required.


The chances of winning a scholarship increase if you look at local opportunities and small awards.


With its directory of scholarships exceeding $11 billion, Cappex is a valuable resource to start hunting for private scholarships.


Lynn O’Shaughnessy is a best-selling author, speaker and journalist. Her book, The College Solution: A Guide for Everyone Looking for the Right School at the Right Price, is available on

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