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What Are the Differences Between State and Federal Financial Aid Programs?

For most families of college-bound teens, college costs are a significant concern. This is no surprise as the average American family is now paying more than $100,000 out of pocket for a degree from a private four-year college.


As college costs rise, more and more families seek financial assistance to help shoulder the burden. The good news is that many more financial aid options exist than most families are aware of. In addition to federal financial aid, there are also private scholarship programs, institutional grants, and even state aid. In this post, we’ll look at the differences between state and federal financial aid and fill you in on what you need to know about each.


What is Federal Financial Aid?


Federal financial aid is the most widely used and recognized financial assistance for a college education. It comes in the form of grants, student loans, and the federal work-study program. Sometimes future vocations, like teaching, are also considered in distributing these awards. Federal aid is designed to benefit all students equally, and funds come from federal resources.


What is State Financial Aid?


State financial aid is similar to federal financial aid in many ways. It too often consists of grants, though loans and work-study programs are also common. State financial aid programs often also offer need-based scholarships that eligible students can apply for. Unlike federal aid, state aid is designed specifically to benefit the students and colleges in that state, and funds come from state resources.


What Are the Primary Differences Between State and Federal Financial Aid?


The biggest differences between federal and state financial aid is who is eligible for these awards and the methods for applying to them.


At the federal level, awards are designed to benefit all students with financial need, regardless of their state of residence or where they are attending college. To be eligible, students need to be either U.S. citizens or approved non-citizens who demonstrate financial aid by filling out the FAFSA.


At the state level, specific requirements vary according to the state, but in general the awards are designed to support in-state students, often attending in-state schools. This means that in most cases, you will need to be a state resident and attending a state-funded college in order to qualify.  


The application process for federal awards is standardized, so every student who applies will do so through the same process. This includes filling out the FAFSA and submitting the required paperwork, including tax returns and other information about family assets. The application process for state awards varies by state; even within a single state, a student might have to fill out multiple applications to apply to different state-funded programs.

Tips for Finding Financial Aid Resources


One of the most confusing aspects of applying for financial aid can be locating the resources that your family needs. While federal aid is a highly standardized process designed to be accessible and available to everyone, many other financial aid programs are less widely recognized and their applicant pools are smaller due to their limited visibility.


Start with the federal financial aid application process. This will ensure that you fill out the FAFSA, which is used by many other financial aid resources too. You can find information on filling out the FAFSA and applying for federal aid in these CollegeVine posts:


The Ultimate Guide to Filling Out the FAFSA

What Information Will I Need to Complete the FAFSA?

The Unspoken Rules of Financial Aid Applications


Check your state’s resources. Often, state financial aid resources are underused simply because lots of families don’t know they are an option. By checking the National Association of Student Financial Aid Administrators (NASFAA) website, you can find links to resources available through every state. Browse your state resources carefully to learn more about the eligibility and application requirements for each state program. If your student is thinking about attending a state school in another state, check that state too. Some states offer aid to out-of-state residents if they attend a public college in that state.


Explore institutional aid options. Many colleges offer their own institutional aid packages. When your student applies to college, they will need to fill out the FAFSA and possibly the CSS profile, which is essentially a College Board application for institutional financial aid. Contact your school’s financial aid office directly to find out more about school grants, scholarships, and loans, then compile a list of deadlines and requirements to work on well in advance.


Look at private scholarship options. Finally, countless private scholarships also exist and are worth looking into. Some are large, national awards with huge applicant pools, while others exist on the local level or offer awards for a highly specialized skill set. Check out CollegeVine’s extensive Scholarships Listings to learn more about what might be available to your family. Note that students must report any outside scholarships they win to their college, and that financial aid packages are usually reduced accordingly. This is because schools don’t allow the amount of scholarships to exceed a family’s determined financial need. Therefore, pursuing outside scholarships tends to benefit students without financial need, though it can benefit students receiving some financial aid if they win enough outside scholarships to cover the entire cost of tuition.


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Kate Sundquist
Senior Blogger

Short Bio
Kate Koch-Sundquist is a graduate of Pomona College where she studied sociology, psychology, and writing before going on to receive an M.Ed. from Lesley University. After a few forays into living abroad and afloat (sometimes at the same time), she now makes her home north of Boston where she works as a content writer and, with her husband, raises two young sons who both inspire her and challenge her on a daily basis.