Paying for College: Understanding the Three Main Types of Aid

a graduation cap over a paper that reads "FINANCIAL AID"

Categories: Financial Aid and Scholarships

March 16th, 2026

Many Penn State World Campus students plan to use one or more forms of financial aid to help pay for their education. It’s important to understand the different types of aid, paying particular attention to repayment obligations (if applicable) and requirements for establishing and maintaining eligibility.

Main Types of Financial Aid

If you think about financial aid like a tree, there would be three main branches on your financial aid tree: gift aid, work-study, and loans. Each year, the majority of Penn State students participate in the major federal and state grant, loan, and work-study programs.

Remember that you must complete the Free Application for Federal Student Aid (FAFSA) to be eligible for any federal aid programs, including Pell grants and federal student loans. You also need a completed FAFSA on file to be considered for need-based aid from Penn State or scholarship opportunities that may be available from the University, academic colleges, individual campuses, or other administrative units.

Note that some types of aid, including loans and work-study, must be accepted by the student in LionPATH before they can be processed.

Gift aid

Gift aid can be further broken down into two categories: grants and scholarships.

Grants

Grants are money you don't have to pay back (except in very specific circumstances, such as if you don’t fulfill your obligations to maintain eligibility). They are based on financial need. Most grants are funded by the federal or state government. Penn State Academic Grants are funded by the University and awarded to undergraduate students with demonstrated high financial need, but funding is limited, so not all students who are eligible will receive funding via this grant program.

Scholarships

Scholarships, like grants, don’t need to be repaid. Each scholarship program has its own specific rules and eligibility criteria.

Scholarships may be based on financial need, merit, or a combination of both. Some scholarships are renewable, and others are a one-time award.

Penn State World Campus offers a variety of scholarship opportunities to first-time or returning undergraduate degree students.

All Penn State students who complete the FAFSA are considered for scholarships that may be available through Penn State's Office of Student Aid, academic colleges, individual campuses, or other administrative units. We also encourage students to explore scholarship opportunities that may be available from businesses in your local community or any organizations with which you may have a connection.

Work-Study

The Federal Work-Study program provides part-time jobs for undergraduate and graduate students with financial need (as determined by the FAFSA).

Work-study is listed in your aid package like other types of aid, but it’s different from most other aid because it’s not deducted from your tuition bill — instead, it is paid via a typical biweekly paycheck, based on hours you work. When you have a work-study job, you’re paid directly and may use work-study money toward education-related expenses.

Even though you may be approved for a work-study award, that doesn’t mean you are guaranteed a work-study position. Students who are approved for work-study will receive information explaining how to find a work-study job. Some work-study jobs do allow for the work to be done remotely.

Loans

For many students, federal education loans may be the primary (or, possibly, only) form of financial aid available. There are several types of student loans available for Penn State students, but not all students will be eligible for every loan program. These loan programs include:

University loans
Federal Direct Subsidized and Unsubsidized Loans
Graduate PLUS loans for graduate students in eligible programs
Direct Parent PLUS Loan for parents of dependent undergraduate students
private loans

Federal student loans generally have more favorable terms and conditions than private loans. We recommend using all federal loan eligibility before turning to private loans.

If you decide to take out any type of student loan, it's important to understand the terms and repayment obligations and commit to being a responsible borrower.

Taking out a loan is a big decision, so take your time to decide. Do some research when deciding how much to borrow. Remember to accept only the loan(s) that you need because you'll have to repay them once you are out of school.