Financial aid is a term that refers to funding that helps students to pay for their education including tuition fees, room and board, books and supplies for their college, university or private school expenses. A scholarship may sometimes be used as a synonym for financial aid. Such aid are usually classified into two different types based on the criteria through which financial aid is awarded: merit-based or need-based. Merit-based scholarship; as the name suggests; are typically awarded for outstanding students with very good academic achievements which includes both scholarships awarded by the individual college or university and also those that are awarded by the outside organizations.

Sometimes scholarships can also be awarded for certain special talents, leadership potential or even other personal characteristics. Such scholarships may sometimes also be awarded without regard for the financial need of the student. They may also be given because of certain group affiliation. Any admitted student may automatically be considered for a merit scholarship. A student may also be awarded athletic scholarship taking his athletic talent into account. Usually people who are very conservative in saving and spending are denied financial aid. This often reduces the aid package drastically for students who could really use this financial aid. Since most of it is based on parental assets, so student who don't get the money from for their educations from their parents are usually forced to take out large student loans or sometimes even send in their appeal stating their circumstances.

Financial aid is practically not available for upper class. These programs are aimed for those students whose parents are earning less than a certain income. The main aim of such programs is to attract more students towards completing their education who come from lower socio-economic backgrounds. Certain universities also have introduced a loan cap program, which is a form of maximum loan that is either counted as per year or for four years combined and is designed to reduce the cost of attendance for low-income and middle class students.

The United States Federal Government does provide a need-based financial aid composing of grants, scholarships, work and loan programs both subsidized and unsubsidized forms. The student must simply file a free application to qualify for the financial aid program. Calculations are usually made taking into account income and assets to determine the students expected family contribution. Colleges use this to decide what type of financial aid a student is eligible to receive. Education loans that are obtained through Federal Government have lower interest rates as compared to any private educational loans but are only granted to the student after considering his profile.