Guide to Financial Aid for Online Students

By Taylor Nichols | Updated October 7, 2020
woman putting coins into a piggy bank

There is overwhelming evidence that earning a degree opens the door to more job opportunities and higher salaries. People who hold bachelor’s degrees are half as likely to be unemployed as those with only a high school diploma – and make $32,000 more per year, on average.

With statistics like these, it’s clear that investing in your education can pay off exponentially. Unfortunately, many prospective students are discouraged from earning a degree because of the financial burden that can accompany higher education. Today, the average tuition cost for in-state students at public institutions exceeds $10,000 per year – and out-of-state students can end up paying triple what in-state students pay.

It’s easy to be intimidated by hefty tuition fees, but paying for school is not an impossible feat. Careful planning and access to the right resources can help minimize student debt. There are billions of dollars given each year in financial aid to make college more affordable. One simply needs to find them.

What are the Different Types of Financial Aid?

On any given day, almost 20 million people in America are pursuing a degree, and 85% of them rely on financial aid to do it. Funding for higher education can come in many different forms. The most common types are grants, scholarships, work-study, and loans.

graphic showing the different types of financial aid

Grants: Federal and state grants usually don't have to be repaid, as long as the recipient meets minimum academic requirements. Students can use grant dollars to pay for anything academically related, including tuition, fees, books, or housing costs.

Scholarships: Scholarships can be based on need or merit and do not need to be repaid. In addition to scholarships given out by the U.S. Department of Education and universities themselves, thousands of scholarships are awarded each year by private organizations to students who have special skills, participate in extracurricular activities, have a financial need, or have specific career goals. Scholarships are a good option for out-of-state and international students who may not qualify for federal or state grants.

Work-Study: Often included as part of a federal financial aid package for undergraduate students, work-study is a government program that pays students to work for their university part-time. Some online schools offer work-study positions for online students on their campuses or with community partners. Students who qualify should check with their school’s financial aid office to see if there are positions available.

Loans: Federal and private student loans are generally the least popular of the financial aid options because they must be repaid. Interest rates and repayment rules vary depending on the lender, and federally-funded loans are typically the most popular for students because of their low interest rates and flexible repayment schedules. Although several private lenders offer education loans as well, students usually see these as the less favorable option.

How Do I Apply for Financial Aid?

The first step in the application process is to fill out the FAFSA (Free Application for Federal Financial Aid). This form provides schools with the information they need to offer you institutional aid and will act as an application for federal and state loans and grants.

  • Students can fill out the FAFSA as early as October 1st of the year before they plan on attending school.
  • Start early. Some states award grants until funding runs out, so students should submit applications as soon as possible after October 1st to receive the maximum amount of aid they qualify for. Check your state’s deadline requirements here.
  • It is still worth it to apply if you miss priority deadlines. Even if state grants run out, you may still qualify for federal grants.
  • Add each school you are interested in on your application, even if you haven’t been accepted yet. This ensures they all receive your financial aid information. You can add up to 10 schools at a time.

Here are some other tips to help students navigate the financial aid process:

  • Get information from the schools you’re interested in. Many schools have counselors who will help you find the financial aid options you need, and most schools offer scholarships and grants specifically for their students.
  • Talk to your local librarian. Librarians can help students find resources for financial aid and college applications, and some library systems have counseling centers specifically for this. If you are not currently enrolled in a high school with counselors, checking out the library is an excellent alternative.
  • Rely on grants and scholarships first. Use federal student loans to cover what is left over, and take out private loans only as a last resort. Federal loans provide many benefits, including fixed interest rates and income-driven repayment plans, that private loans may not offer.

What Is the FAFSA and Why Do I Need It?

The Free Application for Federal Student Aid, or FAFSA, is used to determine how much money a student and/or their family can contribute to the cost of higher education. The government then uses these results to figure out how much financial aid a student will need. The expected family contribution is calculated based on family size and income. The federal financial aid process does not consider whether or not a student’s family will actually be contributing to their education costs. Applicants are considered independent when they turn 24 years old, get married, have children, or pursue a graduate or doctoral degree. This means their parents’ income will no longer be considered when awarding financial aid.

The grants involved in this process are federal and individual state grants. There are four federal grants awarded through FAFSA:

  • Federal Pell Grant: Largely reserved for undergraduate students whose family income is less than $60,000 a year. Most funding goes to individuals with family incomes that are less than $30,000. For the 2020-21 award year, the maximum award amount is $6,345. Some graduate programs are eligible for the Pell Grant.
  • Federal Supplemental Educational Opportunity Grant (FSEOG): The FSEOG is for undergraduate students with exceptional financial need. Students can receive up to $4,000 per year, depending on their need, what other aid they receive, and how much funding the school has available.
  • Iraq and Afghanistan Service Grant: This grant is for students whose parent or guardian died during military service after 9/11 and who are not eligible for the Federal Pell Grant because their Expected Family Contribution is too high. Students can receive up to $6,345 for the 2020-21 school year.
  • Teacher Education Assistance for College and Higher Education (TEACH) Grant: Students who enroll in a teacher preparation program can receive up to $4,000 per year. Recipients of this grant are required to serve as a full-time teacher for four years in a high-need field at a low-income school after earning their degrees.

Do I Qualify for Federal Aid?

To receive federal financial aid, students must:

  • Demonstrate financial need
  • Be a U.S. citizen or eligible non-citizen (includes U.S. nationals, permanent residents, and refugees)
  • Have a social security number (see NASFAA’s tips for getting financial aid as an undocumented student here)
  • For men, be registered with the Selective Service
  • Be enrolled or accepted in an accredited degree or certificate program
  • Have a high school diploma or GED

Does My Online School Accept FAFSA?

Always check to see if the school you’re interested in accepts FAFSA and is authorized to disburse federal student aid. The easiest way to do this is to check a school’s tuition and financial aid hub. Most schools will have information on federal financial aid, including a link to the FAFSA with their school code. If you cannot find any information listed on their website, contact their financial aid office directly.

Schools must be accredited by an organization recognized by the U.S. Department of Education to be able to disburse federal funding. Search for your school in this database to check its accreditation status.

Some programs may have specific enrollment requirements, such as taking classes full or half-time, for students to receive certain types of financial aid. These enrollment requirements can be difficult for online students, who often seek online programs because they are more convenient for students who have jobs, families, and other full-time responsibilities. Check your school’s website or ask their financial aid counselors for enrollment requirements to ensure you can receive funding.

Are There Ways to Qualify for Financial Aid Without the FAFSA?

Filling out a FAFSA may not be necessary for all types of aid, especially those not based on need or family income. When it comes to scholarships that many institutions award students, universities may award funding without considering a student’s FAFSA.

Also, for those who plan on obtaining private loans to cover the costs of their education, filling out a FAFSA may not be necessary. For these types of financial aid funds, students or their parents must fill out a separate set of paperwork specified by the lender.

Although a FAFSA may not be an absolute requirement for every student, it is strongly advised that those who think they may need financial aid funding go ahead with the process and fill it out. Doing so can only benefit students in the long run, since many may find out they are eligible for aid they didn't realize they would qualify for.

checklist for applying for a scholarship

Can I Receive Financial Aid as an Online Out-of-State Student?

Out-of-state students still qualify for federal financial aid but may miss out on state grants. As a result, they may need to rely on other options to reduce their out-of-pocket costs. Luckily, many online programs still offer out-of-state students in-state tuition. Here are a few alternatives for out-of-state online students:

See if your school state is part of a reciprocity program. States join organizations that allow students from specific regions to attend out-of-state schools at discounted or in-state rates. The inclusion of online programs may vary from school to school.

Western Interstate Commission for Higher Education: serves the Western region of the country, including Alaska and Hawaii, and extends to North and South Dakota.

Midwest Student Exchange Program: serves students in the upper midwest, from Nebraska and Kansas to Ohio.

New England Regional Student Program: Students in the six New England states can attend schools within New England at reduced rates and must pursue approved programs.

Southern Regional Education Board: Their Academic Common Market program serves students in southern and southeastern states, from Texas to Virginia. Students must enroll in eligible programs.

Apply for scholarships. There are tons of opportunities available, from diversity scholarships for underrepresented students to award money for knitting contests. While many scholarships require an essay, some require minimal effort and could have an application process that takes less than five minutes. Check your school’s financial aid website for opportunities specific to your school or program.

Check with your employer. More than half of employers offer tuition assistance for employees to go back to school.

Can I Receive Financial Aid as an Online International Student?

As international students don’t qualify for any state or federal grants, paying for a degree at an American school can get expensive. Here are some tips for online international students looking to reduce tuition costs:

  • Take funding for international students into consideration when selecting an online program. Some online schools, such as Walden University, provide grants, scholarships, and tuition discounts for international students.
  • Check with your home country. Many countries provide financial aid for students looking to study in the United States.
  • Rely on scholarships. Websites such as International Scholarships and IEFA.org offer information on scholarships for international students.

What Are My Student Loan Options?

Student loans are often a necessity to cover the costs of college or university tuition. After graduation, however, many students struggle to navigate the sometimes complicated landscape of loan repayment.

Most college loans do not need to be repaid while a student is in school or even for months after graduation. When the time comes to start repaying, however, it’s important that graduates understand their responsibilities as loan holders. From loan deferment to consolidation, here are some of the options graduating college seniors have for student loans.

What Is the Post Graduation Grace Period?

Most students will likely not be able to begin repaying loans during the immediate months after graduation. Luckily, most student loans allow some time before students need to start repayment.

This grace period varies depending on the type of loan a student takes out. Some offer a three-month grace period, while others allow students to take up to nine months before they need to make regular repayment installments.

Government loans, such as the Stafford and Perkins loans, allow six-month and nine-month grace periods, respectively. Some lenders offer extensions on a grace period due to financial hardship, but they grant them on a case-by-case basis.

What Is Student Loan Deferment?

A deferment in the student loan world means that in certain, pre-approved circumstances, someone can temporarily stop making payments on their loan. When a loan holder is in deferment, they can choose to make interest payments or allow the interest to build onto the principal amount owed.

This is how deferment differs from forbearance, in which loan holders must pay the interest. Some loans, such as the subsidized Stafford Loan, do not accrue interest during a deferment period. In this case, the government pays the outstanding interest. Most loans, however, will accrue interest during deferment.

Here are some reasons you may be eligible for deferment:

  • Economic hardship
  • Serving in the Peace Corps or Americorps
  • Enrolled at least half-time in school
  • Military service (active duty or post-active duty)
  • Unemployed but actively seeking employment

What Is Student Loan Forbearance?

Forbearance is similar to deferment, but in forbearance, loan holders must pay the interest that accrues on their outstanding balance. Lenders are very particular about allowing forbearance. A person must have a good history of repayment and cannot be in loan default to be eligible.

Some of the most common conditions in which lenders grant forbearance include financial hardship, teaching in an underserved area, or serving in a governmental volunteer service position. Each forbearance request is considered on a case-by-case basis.

What Does Student Loan Cancellation Mean?

There are a few situations in which certain types of loans can be canceled and do not need to be repaid. The Perkins Loan, for example, might qualify for cancellation if the loan holder works as a teacher in a low-income school for five or more years. This condition is specific to the Perkins Loan and does not necessarily apply to all types of loans. Some Stafford loans may also qualify for this type of cancellation.

More dire conditions that could allow for a loan cancellation are permanent disability or death. Requirements and stipulations vary, so it is best to check with specific lenders for details on cancellation options.

What Does It Mean to Default on a Student Loan?

Failing to make payments on a loan is considered highly irresponsible by lenders and credit agencies. People who are unable to repay their loans will see their credit scores affected, which can have many consequences. They may also lose the ability to choose a repayment plan, receive deferment or forbearance, or be eligible for federal student aid in the future. 

Loan holders who have not made payments for over 270 days are considered officially in default. Most student loans are generally not canceled under bankruptcy, and lenders will go to great lengths to collect money from loan holders in default.

Students who do not complete their degree or who earned a degree from a for-profit college are more likely to default on their loans, and the consequences can follow them for years. If you allow your loan to go into default, your lender can have part of your paycheck withheld to pay your balance and may even take legal action against you. If you are concerned you may enter into default, contact your lender immediately and begin brainstorming other options. The longer you wait, the harder it will be to find a solution.

Are There Tax Benefits for Students?

An educated population makes for a richer nation, not only financially, but also culturally. This is why many governments are proponents of making it as easy as possible to earn a degree. One of the ways the U.S. government eases the financial burden of its citizens is by providing tax breaks to students funding their education.

There are three standard tax incentives for higher education. They are Lifetime Learning Credit, American Opportunity Credit, and Deducting Loan Interest.

  • Lifetime Learning Credit: This applies to anyone who pays tuition and related expenses for you or any eligible dependent. Students can receive up to $2,000 in tax credit and can claim it an unlimited number of times. If you claim this credit, you cannot claim the American Opportunity Credit.
  • American Opportunity Credit: If you paid education expenses such as tuition or course materials and pursued a degree at least half-time, you can claim the American Opportunity Credit. Eligible students can receive up to $2,500 in tax credit, part of which can be refunded to them if they owe less than $2,500 in taxes. This credit can only be claimed four times per eligible student.
  • Deducting Loan Interest: It is possible in certain cases to deduct the interest you pay on a student loan. Some of these cases include the following: you paid interest on a qualified student loan in 2008, your filed status is not married, or your gross income is less than $70,000 and nobody claimed you as a dependent.

Other tax breaks include special tax credits for students and parents, tax-free college savings accounts, and loan interest deductions. Make sure to check with a financial aid officer to see if you qualify for any of these breaks.

What Resources Are Available for Financial Aid Assistance?

There are several different resources available to help students pay for school. The first place any student should begin their search is with the financial aid office of the school they’d like to attend. A university's financial aid officers can offer students a wealth of information on the different ways to pay for school. Financial aid counselors and many librarians generally know the most about scholarships available to students.

For students who prefer to research on their own, however, many excellent resources exist online. When it comes to government-sponsored loans and grants, the U.S. Department of Education’s Federal Student Aid website is the best place to find information on federal aid. Another great source is finaid.org, a nonprofit website that helps students navigate the application process.

Other websites that offer a wealth of information on financial aid, scholarships, and student loan opportunities include the following:

  • FAFSA: Created by the US Dept. of Education, this site offers information about filling out the FAFSA and applying for other forms of federal aid.
  • Federal Student Aid: Whether you are just starting the college application process or looking at paying back loans after graduation, this site offers a comprehensive guide to all stages in the student aid process.
  • USA.gov: This site offers a complete listing of government-sponsored scholarships, grants, and loans.
  • Sallie Mae: Students looking into private educational loan options can do so on Sallie Mae's informational loan website.
  • National Association of Student Financial Aid Administrators: For the most up-to-date information on legislative policy changes regarding student financial aid, check out the National Association of Student Financial Aid Administrators website.