Grants, Scholarships, Work-Study and Loans: How Each One Works

A financial aid offer can list six or seven line items under one heading, and it is easy to read the total as “money the school is giving me.” It usually is not. Some of that total is a gift, some is a paycheck you have not earned yet, and some is debt. The difference matters far more than the total.

Here is the whole map before the details.

Grants: money you do not repay

A grant is aid you keep, as long as you meet its conditions. Most grants are need-based, which means you get them through the FAFSA (see our FAFSA walkthrough). They come from four main places.

Federal Pell Grant

The Pell Grant is the federal government’s core grant for undergraduates who have financial need and have not earned a bachelor’s degree. For the 2026–27 award year, the maximum Pell Grant is $7,395 and the minimum is $740, according to the Education Department. The Department noted that the maximum depends on Congress funding the program and could be revised. How much you receive depends on your Student Aid Index, your school’s cost, and whether you enroll full time or part time. Pell is also capped over a lifetime at roughly the equivalent of six years of full-time awards, so a student who changes direction more than once can run out.

Federal Supplemental Educational Opportunity Grant (FSEOG)

FSEOG goes to undergraduates with exceptional need, typically Pell recipients. Federal Student Aid lists awards of up to $4,000 a year. The catch: not every school participates, and those that do get a fixed pot of money. When it is gone, it is gone, which is one reason school aid deadlines matter.

State grants

Every state runs some kind of grant or tuition program, and they vary enormously: some are need-based, some reward grades, some cover community college or specific high-demand fields, and some require you to stay in state. Many use your FAFSA, and many have deadlines well before the federal one. Your state’s higher education agency is the place to check.

Institutional grants

Colleges also give their own grants, sometimes called scholarships or tuition discounts. At many private colleges, this is the largest source of grant money. Two things to ask: Is it renewable, and what do I have to do to keep it (a minimum GPA, full-time enrollment, a particular major)? A generous first-year grant that disappears in year two changes the math considerably.

Scholarships: free money, with homework

Scholarships also do not need to be repaid. They come from colleges, employers, unions, community foundations, professional associations, religious groups and local businesses. Some reward grades or talent; many target a field of study, a county, a background, or a life situation, such as single parents or adults returning to school.

Legitimate places to look:

• The financial aid office at each school you are considering, which usually lists its own and local awards
• Your state’s higher education agency
• Your employer, your union, or your spouse’s or parent’s employer
• The free CareerOneStop scholarship finder, sponsored by the U.S. Department of Labor
• Community foundations and civic groups in your area

Local and niche scholarships are often less competitive than national ones simply because fewer people apply.

One thing to know before you win one: some schools reduce other aid when you report an outside scholarship, because total aid cannot exceed your cost of attendance. Ask the aid office how they handle it, and whether they reduce loans before grants.

Work-study: a job, not a discount

Federal Work-Study provides part-time jobs for students with financial need, on campus or with approved off-campus employers, often nonprofits. You get a paycheck for hours you actually work, usually paid every few weeks during the term.

That last part is what people miss. Work-study on an aid offer is an eligibility amount, not money credited to your bill. It will not reduce what you owe the school at the start of the term, and if you do not find a position or do not work the hours, you do not get the money. There is no set federal amount; it depends on your need and on how much funding your school has.

Loans: federal and private are different animals

A loan is money you repay with interest. The loans on your aid offer are almost always federal, but private loans exist too, and the two work very differently.

Federal Direct Loans for students

Direct Subsidized Loan

For undergraduates with financial need. The government pays the interest while you are in school at least half time, during a grace period after you leave, and during qualifying deferments.

Direct Unsubsidized Loan

For undergraduate and graduate students regardless of need. Interest builds from the day the money is paid out, including while you are in school.

Both have fixed rates set each year. For loans first paid out from July 1, 2026 through June 30, 2027, the rate is 6.52% for undergraduates and 8.07% for graduate unsubsidized loans. An origination fee is also deducted from each disbursement, so you receive slightly less than you borrow.

Undergraduate annual limits did not change in 2026. A dependent undergraduate can borrow up to $5,500 in the first year, $6,500 in the second, and $7,500 in later years, with no more than $31,000 total. Independent students have higher limits.

Direct PLUS Loans

PLUS loans are for parents of dependent undergraduates (Parent PLUS) and, historically, for graduate students (Grad PLUS). They require a credit check for adverse history, though not a credit score, and carry a higher rate: 9.07% for loans first disbursed in the 2026–27 year. Big changes landed here in 2026, covered below.

Private student loans

Private loans come from banks, credit unions, online lenders and some states. They are priced on credit, often need a cosigner for younger borrowers, and may have fixed or variable rates. They generally lack the federal protections: no federal income-driven repayment, and deferment, forbearance and discharge options set by the lender rather than by law. Most aid offices suggest using federal student loans first. Our guide on deciding whether to borrow for a program goes through those protections in detail.

What changed on July 1, 2026

The 2025 budget reconciliation law, often called the One Big Beautiful Bill Act, rewrote several parts of federal aid, and many provisions took effect July 1, 2026. Federal guidance is still being refined, and some rules have exceptions for people already enrolled, so treat this as orientation and confirm the details for your own situation on StudentAid.gov or with your aid office.

• Grad PLUS ended for new borrowers. Graduate and professional students who do not qualify for an exception can no longer get Grad PLUS loans. Students who were enrolled in a program as of June 30, 2026 and had already received a Direct Loan for it may keep borrowing under the old rules for a limited time, but lose that exception if they leave the program.
• New graduate limits. Federal guidance sets annual unsubsidized limits of $20,500 for graduate students and $50,000 for professional students, with aggregate limits of $100,000 and $200,000. A lifetime cap of $257,500 applies to a student’s own federal loans across undergraduate and graduate study, not counting Parent PLUS.
• Parent PLUS caps. Parent PLUS is now limited to $20,000 a year and $65,000 total per dependent student, no matter how many parents borrow. Repaying the loans does not restore room under the cap.
• Part-time proration. For enrollment periods starting on or after July 1, 2026, schools must reduce annual Direct Loan limits for students enrolled less than full time. Parent PLUS is excluded.
• New repayment plans. Borrowers with any loan disbursed on or after July 1, 2026 repay under a new Tiered Standard plan or the Repayment Assistance Plan (RAP), an income-based plan with payments of 1% to 10% of adjusted gross income, a $10 monthly minimum, and forgiveness of remaining balances after 30 years. Parent PLUS loans are not eligible for RAP.
• Workforce Pell. Pell Grants can now go to students in qualifying short-term job training programs. Under the Department’s May 2026 final rule, eligible programs run 150 to 599 clock hours over at least 8 but fewer than 15 weeks, must be approved by the state’s governor and the Education Department, and must meet completion and job-placement thresholds. Fewer programs qualify than the label suggests, so ask a school directly whether a specific program is Pell-eligible.

An order of operations

When you look at an offer, sort it in this order: grants and scholarships first, then work-study, then federal student loans, then anything else. Take everything in the first group. Treat work-study as income you might earn. Borrow only what you need from federal student loans, and look hard at alternatives before a Parent PLUS or private loan. Our net price guide shows how to turn that sorted list into the number that actually matters, and the cost estimator will total it for you.