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The Real Money Sources

To effectively devise a plan to pay for college, it is important to understand where the money "really" comes from.  Funding for college comes from three basic sources – the federal government, the institution itself, and the private sector.

There are two basic types of funding – gift aid (money that does not have to be repaid), and self-help aid (money that is either worked for or borrowed).  Gift aid is commonly in the form of scholarships, grants, endowments, and tuition discounts.  Self-help aid is made up of work-study programs, along with federal student and parent loan programs.  Nearly all funding packages have a combination of both gift and self-help aid.

The government’s money is passed to the colleges and universities and is then distributed to the students by the institutions.  Government funding may be in the form of gift aid or self-help aid.

In addition to the government’s money, many public institutions and most private institutions have their own endowment funds.  Schools with endowment funds not only distribute the government’s money, they will also offer their own money, most often in the form of gift aid, to attract the students they want.  Many endowment funds are substantial.  In fact, several institutions have over $1 Billion in endowments in the United States, and hundreds more have over $100 Million at their disposal.

The private sector scholarship funds (Target, Tylenol, and your local Elks Club – for example) are separate applications and are typically not reliant on the federal government, the institution, or their procedures.  Private sector scholarships are most often gift aid (commonly called "free" money) and do not have to be repaid.

Private sector funds are very attractive; however, it takes a great deal of time and effort to locate and match potential awards with the student's situation and achievements.  Although attractive, it is important to know that private sector scholarships make up only about three percent (3%) of all awarded funding each year.  In addition, nearly all private sector scholarship sponsors set their own rules.  In other words, they are not obligated to respond to a request for an application, nor are they obligated to notify an applicant if their application is incomplete.