Financial Aid for Online
College Students

What’s Available, Who Offers It, and How to Successfully Apply

The cost of one year at a private four-year college averaged $32,405 in 2015. To offset the rising cost of tuition and fees, many students enrolled in online programs must secure financial aid, even with the potential savings distance learning provides. This guide helps online students learn about available financial aid options and resources that can make college more affordable, such as scholarships, grants, loans and other funding. Also covered are expert tips when applying for federal aid, including do’s and don’ts for completing the FAFSA®.

Search Online Colleges Granting Financial Aid

With tuition rates escalating at such a fast pace, it’s important to research which online colleges offer the best financial aid opportunities. Prospective students can use this search tool to find schools based on their tuition costs and available financial aid packages.

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Why Applying for Financial Aid is Worth the Effort

Many students don’t investigate financial aid options because they assume they won’t qualify to receive help. However, there are millions of dollars available in financial aid for students, including those enrolled in online programs.

2/3 of full-time students receive financial aid and scholarships.

Source: College Board

Less than $6,000:
The amount students attending four-year colleges pay for tuition and fees after financial aid.

Source: American Council on Education

In 2014-15, undergraduate students received an average of $14,210 in financial aid.

Source: Trends in Student Aid 2015

Types of Financial Aid for Online Students

The federal government offers several types of financial aid to eligible students, some of which needs to be repaid. Read on to learn more about all types of student financial aid, including scholarships, loans, work study programs and employer-sponsored tuition.

Scholarships
Who Should Apply: Students who meet the scholarship’s stated requirements
Who Offers It:
  • Private Organizations
  • Nonprofit Organizations
  • Religious Entities
  • Universities
Req. $ to be Paid Back: No
Need- or Merit-Based: Both
Fellowships
Who Should Apply: Students who meet the fellowship’s stated requirements
Who Offers It:
  • Nonprofit Organizations
  • Private Organizations
  • Universities
Req. $ to be Paid Back: No
Need- or Merit-Based: Both
Grants
Who Should Apply: Students automatically apply by completing FAFSA®
Who Offers It:
  • Federal Government
  • State Government
Req. $ to be Paid Back: No
Need- or Merit-Based: Need-based
Loans
Who Should Apply: Students who need additional funding after exhausting scholarships and other “gift aid”
Who Offers It:
  • Federal Government
  • State Government
  • Banks
Req. $ to be Paid Back: Yes
Need- or Merit-Based: Need-based
Work Study Aid
Who Should Apply: Students who want to earn extra money to pay for educational expenses by working part-time
Who Offers It:
  • Federal Government
Req. $ to be Paid Back: No
Need- or Merit-Based: Need-based
Employer-Sponsored Tuition
Who Should Apply: Employees who want to upgrade their skills and are planning on staying with their current company for the foreseeable future
Who Offers It:
  • Employers
Req. $ to be Paid Back: No
Need- or Merit-Based: Neither

Source: Studentaid.ed.gov

In-Depth Analysis of Online Financial Aid Options

There’s much more to know about each financial aid type mentioned above. Keep reading for an in-depth examination of tuition assistance options for online college students.

Scholarships

Companies, clubs, religious organizations and non-profits award billions of dollars in scholarships each year to help students pay for education expenses. Scholarships are offered based on financial need, academic merit and other criteria. Best of all, this money does not usually need to be repaid. The criteria and requirements for receiving private scholarships vary widely, and awards can be worth hundreds or thousands of dollars.

Next Steps:

Fellowships

Fellowships are grants usually offered to fund study or research in graduate school, although there are some undergraduate fellowships as well. Many fellowship programs target a specific field of study. Because fellowships are lucrative, they are very competitive.

  • Internal, or institutional, scholarships are typically merit-based awards offered by a student’s university. They cannot be used at any other school.
  • External scholarships are federally-funded or offered by sponsoring organizations and can be applied at any school. They can be merit-based, academic-based or need-based.

Next Steps: Contact your school’s financial aid department.

Grants

Grants are another form of “gift aid,” meaning students don’t have to pay them back. The U.S. Department of Education and many individual states offer several types of grants to online college students.

Federal Pell Grants

Awarded to undergraduate students who have not yet earned a bachelor’s degree. They may also be awarded to students enrolled in a qualifying post-baccalaureate teacher certification program.

  • Maximum Federal Pell Grant amounts change each year. The maximum award for the 2016-2017 year is $5,815. Awards are based on financial need, cost of attendance and enrollment status.
Federal Supplemental Educational Opportunity Grants (FSEOG)  

This campus-based aid, worth $100 to $4,000 per year, is available to students with the most financial need who already receive Federal Pell Grants. Unlike the Federal Pell Grant Program, which awards money to all eligible students, FSEOGs are limited to each school’s available funds.

Teacher Education Assistance for College and Higher Education (TEACH) Grants

TEACH Grants are worth up to $4,000 per year. They are different from other federal student grants in that they require students to teach in low-income areas. The grant is automatically converted to a Direct Unsubsidized Loan if the recipient does not meet the conditions.

Iraq and Afghanistan Service Grants

Iraq and Afghanistan Service Grants are worth the same as Pell Grants. To receive these federal grants, students must have a parent or guardian who was a member of the U.S. armed forces and died as a result of military service in Iraq or Afghanistan after 9/11.

Next Steps: Complete the FAFSA®

State Grants

Most state education agencies administer at least one grant or scholarship to student residents, and many offer a long list of grants. In most cases, students must attend an in-state college to qualify.

Next Steps: Contact your state’s department of education or related agencies

Loans

Federal Loans

Federal loans are offered to students who qualify as part of a school’s financial package. Students must pay back all money they borrow with interest to the lenders, whether it is the federal government or a private bank. The following table presents the types of loans available to online students, the maximum amounts that can be borrowed and the associated interest rates.

Next Steps: Complete the FAFSA®

Direct Subsidized Loans Direct Unsubsidized LoansDirect PLUS Loans Federal Perkins Loans
Who Qualifies Undergraduates enrolled at least half-time in a degree or certificate program with financial need Undergraduate, graduate, and professional students enrolled at least half-time; financial need not requiredGraduate or professional students, parents of dependent undergraduate students with good credit history Undergraduate or graduate students with exceptional financial need at participating schools
Lender U.S. Dept. of Education U.S. Dept. of Education U.S. Dept. of Education School
Annual Award Amount $3,500-$5,500, depending on grade level Dependent students: $5,500-$7,500, depending on grade level Independent students: $9,500- $20,500, depending on grade level Cost of attendance minus other aid Undergrad: $5,500 Graduate: $8,000
Interest Rate* 4.29% Undergrad: 4.29% Graduate: 5.84% 6.84% 5%
Interest-Free Grace Periods Yes No No Yes
Loan Fee 1.068% 1.068% 4.272% None
Repayment Start Date 6 months after student graduates or drop below half-time enrollment 6 months after student graduates or drops below half-time enrollment Students: 6 months after student graduates or drops below half-time enrollment Parents: After disbursement but parents may apply for deferment while student is enrolled at least half-time and for 6 months after graduation 9 months after student graduates or drops below half-time enrollment

Source: U.S. Department of Education

Note: Interest rates are updated every year. See current interest rates for federal loans.

State Loans

Many states administer student loan programs, usually with terms and conditions similar to Federal Direct Loans. Because state resources are not as large as federal resources, interest rates and charges may be higher.

Next Steps: Contact your state’s department of education or related agencies

Private Loans

Loans from private lenders, like banks, credit unions, and other organizations, are an alternative funding option. Most experts advise students to pursue federal and state loans rather than private loans for several reasons.

  • 1Credit History Check. Private loans are credit-based. Those with the best credit histories get the best rates. Because most undergraduates don’t have an extensive credit history, they usually need a co-signer willing to take over the debt if they miss payments.

    Red flag: Private loans with no credit check requirement. Legitimate lenders pull your credit report.

  • 2Higher Interest Rates. Federal loans have lower interest rates than private loans. The rates are fixed, so it’s easy to predict monthly payments. Private loans with fixed interest rates are out there, but they are less common.

    Red flag: Interest-only rates that keep your payments low but extend the life of your private loan.

  • 3Extra Fees. Private lenders often tack on extra fees to each loan, particularly for borrowers with bad credit. A report from the National Consumer Law Center found some lenders added fees as high as 3% to 4% of the loan, equal to a 1% interest rate.

    Red flag: Low-interest rates with extra fees that send your private loan skyrocketing over time.

Federal Work-Study Program

Undergraduate and graduate students who participate in Federal Work-Study are able to earn money to offset their educational expenses. To qualify, students must have financial need. Participating schools administer the Federal Work-Study Program through their financial aid office on a first-come, first-served basis.

When possible, students are placed in jobs related to their course of study, and many students work for the school on campus. Off-campus jobs are usually with private nonprofit organizations or public agencies. Students are guaranteed to earn at least the minimum hourly wage and can only work the number of hours they are awarded.

Next Steps: Complete the FAFSA®

Employer-Sponsored Tuition

A 2014 survey by the Society for Resource Management found 54 percent of companies offered undergraduate tuition assistance, and 50 percent offered tuition assistance for graduate studies. Reimbursement amounts vary, but some employers will cover the full cost of tuition. In most cases, employers specify which areas of study are acceptable for reimbursement. In addition, students must typically maintain a minimum GPA to qualify for reimbursement.

Next Steps: Speak with your employer’s human resources manager.

Further Opportunities for Financial Aid

While scholarships, loans, and grants are the most popular types of financial aid, they aren’t the only options for offsetting the cost of an online college education. Here are some alternative financial aid options.

Crowdfunding

Crowdfunding involves raising money from large groups of people. It often involves the help of a third-party website, where each person contributes a relatively small amount. Along with general crowdfunding sites like GoFundMe and Indiegogo, which are known for helping businesses and charitable causes, education-specific crowdfunding sites are now used by students to help pay for college or graduate school.

  • ScholarMatch: This crowdfunding site was founded by author Dave Eggers and allows individuals to contribute to the college scholarship funds of underserved youths.
  • Piglt: Piglt users can make campaign videos showcasing their talents and explaining the educational goals they hope to reach with the help of funding. People who watch these videos can make donations in exchange for incentives–usually skills or products–offered by the video-maker.
  • AlumniFunder: This crowdfunding website connects donors with students attending their alma mater. Students get help paying for school, and donors get the security of knowing their donations are actually going to a verified student.
Federal Tax Breaks

The IRS offers several tax credits and deductions for students.

Veteran Benefits

Veterans may qualify for tuition assistance and higher education benefits through programs like the Post-9/11 GI Bill.

Financial Aid
for Veterans
Alumni Programs

Some schools offer special scholarships or grants for students who have already attended that school or are the children of former students. Contact college financial aid offices for more information.

FAQs About Online College Financial Aid

In 2013, more than 6.7 million students took at least one online class. As this number continues to increase, so does the demand for financial aid for online students. Here are answers to some common questions about online college financial aid.

Are online students eligible for the same types of financial aid as on-campus students?

Until February 2006, schools needed to provide at least 50 percent of instruction in a physical classroom to offer federal financial aid. Congress lifted the requirement, and now many accredited online schools offer federal financial aid packages. Online students who meet the same eligibility requirements as on-campus students are typically qualified for the same types of financial aid.

Are there scholarships specifically designed for online students?

Yes. There are agencies and organizations that sponsor scholarships specifically for online students.

Do online colleges offer institutional scholarships to their students?

Yes. More and more online schools and universities are offering programs to make college more affordable. For example, online schools offer need- and merit-based scholarships as well as family and alumni discounts.

Applying for Federal Aid as an Online Student

Completing the FAFSA® is the only way to determine whether you qualify for federal aid as an online student. FAFSA® stands for Free Application for Federal Student Aid. It’s fairly quick to fill out and is the catch-all application for all types of federal financial aid, including grants and work-study opportunities. Many colleges also look at student FAFSA® information when determining school-based financial aid packages.

Before applying, however, students need to make sure they meet all of the basic eligibility requirements. Take the quiz below to see if you qualify. Answer the following questions True or False.

To be eligible to receive federal financial aid …

You need a high school diploma.

True False
False

Not necessarily. You can also submit a General Educational Development (GED) Certificate or proof that you completed a state-approved homeschool program.

You don’t need a Social Security number.

True False
False

All federal financial aid recipients must have a Social Security number (except residents of the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau).

You must be enrolled in or accepted to an approved college.

True False
True

Enrollment in or acceptance to an eligible degree or certificate program is mandatory.

You must register with the Selective Service (males only).

True False
True

All males ages 18 to 25 must be registered with the Selective Service.

You don’t need to maintain good grades to remain eligible for federal financial aid.

True False
False

Receiving federal financial aid is dependent on maintaining successful academic progress.

You must certify that you won’t use federal student aid for anything except educational purposes and are not currently in default of a student loan.

True False
True

Yes. In addition, you must certify that you don’t owe a refund on a federal grant.

You must be a U.S. citizen.

True False
False

Not necessarily. You may also be eligible for financial aid if you have a green card, T visa, battered immigrant status or an arrival-departure record.

Source: Federal Student Aid, Department of Education

College Accreditation, Financial Aid, and You

The U.S. Department of Education only allows accredited online colleges to participate in federal student aid programs. Many state programs also require participating schools to be accredited. To become accredited, a school must meet quality standards set by nationally recognized independent agencies.

What You Should Know Before Filling Out the FAFSA®

Filling out forms is rarely a fun process, but skipping out on the FAFSA® means losing the chance to receive aid from the government and academic institutions. The FAFSA® may be intimidating at first, but these tips can help students through the process and get one step closer to potentially saving money on their education.

Stay away from costly services

Even though the FAFSA® is a free education process, there are services that charge as much as $500 to fill out the forms. If you need assistance, your school’s financial aid office can help you or connect you with someone who can—for free.

1
Don’t procrastinate!

Because there is only a limited amount of funds available, it’s important to apply as soon as possible. The FAFSA® submission period begins on January 1 and ends June 30. Any applications received after the deadline will not be processed.

2
Do it all online

The most efficient way to submit the FAFSA® is online. It only takes 10 days for a school to receive your admission so they can determine your financial aid needs. If you need a break, you can save your work and continue later.

3
Fill in every answer

If a question doesn’t apply to your situation, enter “N/A” or “0” in the blank. Skipping questions puts your application at risk of being flagged as incomplete, which can affect processing time.

4
Estimate carefully

Depending on the time of year, you may need to estimate your income tax, so try to be as accurate as possible. If you are too far off the mark, it may mean major changes when they verify your final tax data later.

5
Proofread

Even small mistakes can delay processing. One common mistake is misunderstanding who the questions refer to when they ask you to enter to “your Social Security Number” or “your income.” These questions refer to the student, not the parent, even if the parent is the one filling out the form.

6
Apply every year

Your financial aid package is only valid for one year, so submitting the FAFSA® is not a one-time deal. When you fill out the FAFSA® online, it is easy to renew it because the previous year’s information is automatically populated into the fields.

7
Don’t Lose Your Federal Aid!

It’s not enough to be eligible at the time you submit the FAFSA®—you must remain eligible in order to keep your Federal Student Aid. Here are three ways you can become ineligible.

  • 1Reduction in credit hours. You must be enrolled as a regular student in an eligible degree or certificate program. To be eligible for Direct Loan Program funds, you must be enrolled at least half-time. Withdrawing from a class can affect your enrollment status.
  • 2Failure to maintain satisfactory academic progress. To continue receiving Federal Student Aid, you must make high enough grades and complete enough credits or hours in a time period your school finds acceptable to complete your degree.
  • 3Defaulting on a student loan. To get out of default and regain financial aid eligibility, you must either repay your federal loans in full or do one of the following:
    • Loan rehabilitation: Make 9 monthly payments within 10 consecutive months, all within 20 days of the due date.
    • Loan consolidation: Pay off one or more federal student loans with a single new loan that has a fixed interest rate.

Advice From Financial Aid Expert Mark Kantrowitz

QWhat advice would you give to someone seeking financial aid for the first time?

File the FAFSA® as soon as possible after October 1. Students who file the FAFSA® in the first three months tend to receive more than twice as much grant funding as students who file the FAFSA® later. Several states and colleges award aid on a first-come, first-served basis until the money runs out. 

QWhat is the biggest mistake students make during the financial aid process?

The biggest mistake people make is to not file the FAFSA®. You can’t get money if you don’t apply. Students should apply for aid every year, even if they didn’t get anything other than loans last year.

QWhat should students know about filling out the FAFSA® online?

Allow extra time to get an FSA ID, as the process is complicated. You don’t have to wait until October 1 to get a FSA ID. You can start the process of getting a FSA ID before October 1. Note that you will need to have access to your email to finish the process of obtaining a FSA ID. The FSA ID is an electronic signature and should be shared with nobody, not even your parents or the parent’s FSA ID with the child.