Financial Aid at Online Colleges

Since the passing of the Higher Education Reconciliation Act of 2005, federal aid has been made available to students enrolled in accredited online degree programs. Before the act, online education was widely considered a suspect way to earn a degree, which meant online-enrolled students were denied access to major sources of aid. But today these programs have earned the recognition and financial support that all legitimate post-secondary operations are entitled to.

Yet, in spite of this win, misinformation about online education continues to circulate. And as you might expect, prospective students who equate online programs with no financial aid rule out online education entirely.

In this brief report, we will first explain why misunderstandings about financial aid and online education remain. From there, we'll show you, the prospective student, how to do your due diligence, verifying that all major forms of aid are offered at the program of your choice.

Qualifying for Aid

Where does the confusion surrounding online aid come from? The culprits most educators and admissions officers point to first are certain types of for-profit online schools dubbed "diploma mills." These substandard schools preyed on misinformed students eager to earn their degrees quickly and cheaply. The mills were so prevalent that they became synonymous with online education as a whole, a stigma that's proven hard to shake.

Almost all diploma mills lacked (and still lack) accreditation ? the stamp of approval from an independent and reputable educational board. Schools with no academic oversight awarded students degrees that, in the eyes of the academic community and most employers, were effectively worthless. This was motivation enough for the federal government to severely restrict online students' access to aid; the fear being that students would be overcharged for inadequate degrees and then left with a mountain of debt.

But as more and more legitimate schools launched great online programs, there was enough aboveboard activity online for the federal government to feel it could lift aid restrictions. And the clearest way for the government to ensure that only deserving schools received aid? Accreditation.

The basic idea behind accreditation is that the U.S. Department of Education turns to private accrediting agencies it has recognized as "reliable authorities [on] the quality of education or training provided by the institutions of higher education" to verify the academic merits of a given school and its programs. Once these agencies have awarded schools an accreditation title, they are added to the Department of Education's Database of Accredited Postsecondary Institutions and Programs. Inclusion on this database effectively means the school and its students will qualify to apply for federal aid, again, with online programs included.

Financial Aid Options for Online Students

Once you've used the accreditation database to confirm that your school and program are in fact accredited by a recognized agency, you need to take a step back and actually consider all of the aid options to choose from. First, we provide a brief explanation of the general sources responsible for distributing aid to students, followed by a list of the most common types of aid, which, for the most part, can be obtained from any of the aforementioned sources:

Sources of Financial Aid

Federal Aid

As the name states, this covers aid from the federal government and is the most common source of aid sought by students. All information related to federal aid is covered on the government's site for students: The major forms of aid offered by the government are grants, loans and work-study. Aid is determined based on the information students provide in their FAFSA application, which is required by virtually all U.S. postsecondary programs to determine a student's overall aid eligibility.

State-Sponsored Aid

State governments also offer their own sources of financial support to students; for that matter, the same could be said for county, city and municipal governments. Largely coming in the form of merit-based scholarships and grants, state-based aid is usually limited to students with resident status in a given state. That being said, eligibility truly varies state to state, so be sure to review all stipulations in your state of residence, as well as the state where you attend school, if the two should differ.

College-Sponsored Aid

Schools themselves offer their share of aid resources, typically in the form of scholarships, grants, fellowships and work study. The number of such options at your school may very well depend on the school's private or public status ? some public schools will have aid that overlaps with state-sponsored aid. Wealthy private schools, while typically the most expensive places to earn a college degree, tend to have the largest coffers to use in support of their students in need. Determining your aid options at the school level is all a matter of research; students would do well to speak to a school's financial aid office early and often to grasp everything offered.

Private Aid

After exhausting financial support from the three categories above, you may find you still cannot afford your degree. The first option to consider is private organizations that award merit- and need-based scholarships and grants. While these organizations will have their own distinct eligibility requirements, there are a staggering amount of such options available. If you find you are still on the hook, private loans may become the only realistic way to pay for your education. The catch is that the interest rates and terms provided by lenders tend to be much more aggressive and unforgiving than those provided by the federal government. To many, this makes private loans a last resort. Despite that opinion, such loans have become a fixture of federal aid, financing millions of students and graduates education.

With the sources out of the way, let's briefly identify the types of aid:


Grants are non-refundable aid awarded by an organization. They typically require a greater degree of accountability on the part of recipient than, say, scholarships. Grants often require students to work in some capacity within a certain program and then formally report to the organization distributing the grant.


Fellowships refer to stipends or endowments that support students working within a particular field or in support of a certain research effort, often in support of a professor. Fellowships are almost exclusively found at the graduate level.


The most common source of aid, loans refer to borrowed sums that must be paid back, with interest, in accordance with the terms of a legal agreement between the lender and borrower.


Scholarships are non-refundable sources of aid awarded by organizations for any number of reasons, such as financial need, academic achievement or athletic ability. Scholarships tend to have basic requirements students must maintain, such as GPA, to remain qualified for their funds.

Work Study

Work study refers to an organization, most commonly the federal government, arranging part-time employment opportunities for students, which, when filled, guarantee a certain level of wage, supporting students throughout the term of their program. Work-study programs tend to only be available for students on-campus for some portion of their program.

Now What?

Now that the basics of financial aid for you, the online student, have been established, we'll quickly explain three big steps to financial aid for online students.

  1. Complete Your FAFSA – Your FAFSA is the ultimate determiner of much of the aid that will be available to you throughout the tenure of your education. It is essentially mandatory for any student interested in aid. Pay close attention to the FAFSA site and thoroughly fill out your application. The earlier you get your application in, the more time you will have to work out your entire financial aid package.
  2. Compare Your Costs to Your Available Aid – Once you've received the final word from the federal government and any other grants, scholarships and loan applications you've applied for, you should have a definite understanding of how much aid you are to receive versus how much your school is going to cost you per semester. If those numbers differ, you need to explore your private aid options. Remember to give yourself as much time as possible to figure out total incoming aid. The more time, the easier it will be to prepare applications for additional grants and loans, which can alleviate your dependency on hefty private loans.
  3. Reach Out to Your Financial Aid Office – This step should occur parallel to all researching, applying and accepting of aid you do. A school's financial aid officers are a crucial resource, providing you with the frankness and direction you need to know what you are really getting into. They are well versed in the sources of aid out there that are most obtainable for a student like you. Keep in close contact with such people to ensure you are doing everything you can in a timely and effective fashion. With the help of such financial aid officers, the end result will likely be an excellent and entirely manageable aid package.