Financial Aid for Online College Students What’s Available, Who Offers It, and How to Successfully Apply
Financial aid helps online college students pay for their degree. Every year, the federal student aid program awards $120 billion in financial aid. Undergrads receive an average of $13,000 in grant and scholarship aid annually. By researching financial aid opportunities, online learners can save thousands on college costs.
In 2018, nearly 7 million students enrolled in distance education classes. Fortunately, online students can receive many of the same forms of financial aid as on-campus students. Understanding scholarships, grants, fellowships, and other forms of financial aid can make college more affordable. Online learners should make sure to fill out the FAFSA every year to qualify for federal financial aid programs.
Our guide to financial aid for online college students outlines the different types of financial aid for online learners, what to know about the FAFSA, and how to choose colleges that qualify for federal aid programs.
Financial Aid Resource Center
Why Applying for Financial Aid is Worth It
The cost of college continues to rise. Many students cannot afford to pay for college out of pocket, but the process of applying for financial aid can feel overwhelming. Students need to collect financial information, fill out forms, and hunt down scholarship opportunities.
However, applying for financial aid is worth the effort, since it can save students thousands of dollars every year. In 2017, students at four-year public schools received an average of nearly $6,000 in grant aid. Those at private universities received over $20,000. These forms of financial aid do not require repayment.
Like on-campus students, online learners can use financial aid to pay for college. When researching financial aid for online college, students do not need to limit their search to expensive private loans. Grants, scholarships, fellowships, and employer-sponsored tuition programs all help online learners pay for their degree.
In 2017, undergraduates received an average of $14,400 per student in financial aid, including:
- $8,440 in grant aid
- $4,620 in federal loans
- $1,280 in education tax credits and deductions
- $60 in Federal Work-Study monies
The average student paid just $4,140 for tuition and fees per year after financial aid to attend an in-state four-year college in 2017-2018.
Financial aid provided by colleges and universities increased to $58.7 billion in 2017, up 32 percent from 2016.
What 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.
Find FAFSA-Eligible Online Colleges
With tuition rates on the rise, it is 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. Even with access to online schools around the country, it’s nice to know what local schools charge. This tool allows students to search for local FAFSA-eligible schools.
What advice would you give to someone seeking financial aid for the first time?
File the FAFSA® as soon as possible. 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.
Types of Financial Aid for Online Students
Online students qualify for many types of financial aid, including scholarships, grants, and loans. Many students use several different forms of financial aid to pay for school. By understanding the different types of financial aid, students can maximize their awards and lower the cost of earning a degree.
This is an ideal form of financial aid because they do not require repayment. Many professional organizations, nonprofit organizations, and private foundations offer scholarships. Online students attending accredited institutions generally qualify for the same scholarship opportunities as on-campus students.
Students can research scholarship opportunities through their school, in online databases, or directly from organizations. Some scholarships may require proof of financial need in the form of the FAFSA. Other scholarships may award funds based on factors like academic merit, identity, and/or field of study. The eligibility and application requirements for scholarships can vary widely, with some requiring an essay, interview, and/or letters of recommendation.
These are a form of merit-based financial aid generally awarded to graduate students. Like scholarships, recipients do not need to repay fellowships. Some fellowships cover the cost of tuition and offer a stipend, making them one of the most lucrative forms of financial aid.
Students can generally qualify for fellowships through their university or by submitting applications to private organizations. Some fellowships include service commitments, such as contributing to a research project, completing an internship, or teaching students. Many fellowships either provide multiple years of funding or let recipients renew the award annually.
Students do not need to pay back grants, making them one of the best forms of online financial aid. Most grants award funds based on financial need. Students can qualify for the federal Pell Grant by filling out the FAFSA. Many state grant programs also use the FAFSA to determine eligibility.
Unlike scholarships, some grants carry service obligations. For example, the federal TEACH Grant, which supports future teachers, requires recipients to teach in a high-need field or a low-income school after graduation. If they do not meet the service obligation, the grant converts to a loan.
Most college students take out loans to pay for tuition and fees. Unlike scholarships, grants, and fellowships, recipients must pay back student loans with interest. As a result, online learners should prioritize forms of aid that do not require repayment before borrowing money.
To receive federal loans, students must fill out the FAFSA. Students can also apply for private loans through financial institutions. When evaluating loans, borrowers should look into interest rates, repayment options, and grace periods.
For most students, federal student loans offer the best repayment plans and interest rates. Federal loan borrowers often receive perks like interest deferrals, loan repayment plans, and deferment programs.
Work-study programs offer part-time job opportunities for income-eligible students. Work-study aid helps students gain professional experience while earning money for their degree. Students can qualify for the federal work-study program by filling out the FAFSA.
Schools connect recipients with work-study jobs, including on-campus and off-campus opportunities. Work-study students receive a guaranteed minimum wage with a maximum number of hours per week or month. Most programs pay students directly.
To receive work-study aid, students generally need to demonstrate financial need. Both undergraduate and graduate students qualify for the federal work-study program.
Many employers offer tuition reimbursement programs as part of their benefits packages. Employees who attend an eligible program can use this benefit to cover tuition costs. Generally, students must apply for employer-sponsored tuition through their company's human resources office. Eligible employees typically pay their tuition up front, and employers reimburse the tuition costs for students who meet GPA minimums at the end of the term.
In 2018, 51% of employers reported offering tuition reimbursement programs, according to the Society for Human Resources Management. Working professionals considering financial aid for online college should check with their employer to learn more.
In-Depth on the Types of Financial Aid
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.
Companies, clubs, religious organizations and nonprofits 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: Search our scholarship listings for possibilities.
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 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.
A grant is one of many different forms of federal financial assistance used by the U.S. government to redistributes financial resources. Financial assistance for college can come in the form of:
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®
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. Some examples include:
- The state of Florida offers a dozen different state-sponsored grants and scholarships.
- California’s grant opportunities are reserved for students in specific demographics.
- A half-dozen grant opportunities make up a small part of Illinois’ state financial aid options.
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, state 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.
Funded by the federal government, these loans have rules and restrictions set by law, including fixed interest rates and income-driven repayment plans, that are usually not offered by private lenders.
Direct Subsidized Loans
Undergraduates enrolled at least half-time in a degree or certificate program with financial need may apply for these loans from the U.S. Dept. of Education. Award amounts vary depending on grade level and include an interest-free grace period.
- Interest Rate: 5.05%
- Loan Fee: 1.062%
- Repayment Start Date: 6 months after student graduates or drops below half-time enrollment
Direct Unsubsidized Loans
Undergraduate, graduate, and professional students enrolled at least half-time may apply for these loans from the U.S. Dept. of Education. Financial need is not required, and award amounts vary depending on grade level and whether a student is a dependent (independents may receive more than dependents). There is no interest-free grace period.
- Interest Rate: 5.05% for Undergraduate, 6.6% for Graduate & Professional
- Loan Fee: 1.062%
- Repayment Start Date: 6 months after student graduates or drops below half-time enrollment
Direct PLUS Loans
Graduate or professional students and parents of dependent undergraduate students with good credit history may apply for these U.S. Dept. of Education loans. Award amounts are for the cost of attendance minus other scholarships/aid, but there is no interest-free grace period.
- Interest Rate: 7.6%
- Loan Fee: 4.248%
- Repayment Start Date, Students: 6 months after student graduates or drops below half-time enrollment
- Repayment Start Date, Parents: After disbursement, but parents may apply for deferment while student is enrolled at least half-time and for 6 months after graduation
Federal Perkins Loans
Undergraduate or graduate students with exceptional financial need can apply for this loan if they are attending a participating school. Award amounts are $5,500 for undergrad students and $8,000 for graduate students, and there is an interest-free grace period.
- Interest Rate: 5%
- Loan Fee: None
- Repayment Start Date: 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.
These loans are offered by private organizations such banks, credit unions, and state-based or state-affiliated organizations. Most experts advise students to pursue federal and state loans rather than private loans for several reasons. Take a look at the red flags below.
Credit 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.
Higher 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.
Extra 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.
Next Steps: Contact your state’s department of education or related agencies to see state-sponsored loan options, or connect with a financial advisor at your local bank.
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®
A 2017 survey by the Society for Resource Management found 53 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.
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 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.
- The American Opportunity Tax Credit and Lifetime Learning Credit can reduce the amount of tax owed on your tax return by up to $2,500.
- The tuition and fees deduction allows eligible students to reduce taxable income up to $4,000 while the student loan interest deduction can lower taxable income up to $2,500.
Veterans may qualify for tuition assistance and higher education benefits through programs like the Post-9/11 GI Bill.
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.
Frequently Asked Financial Aid Questions
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.