How Financial Aid for Online Degrees Works

Cat with mouse
That’s not Colby, the pseudo college-going cat, but still, that feline looks pretty smart. See more investing pictures.
© 2009 Jupiterimages Corporation

In 2004, Colby Nolan was awarded an online master's degree in business administration (MBA) from Trinity Southern University. That same year, Wayne Botha earned his MBA online through the University of Phoenix. Colby's degree cost $399, while Wayne's degree cost approximately $655 per credit hour [source: University of Phoenix].

Colby didn't get a great college financial aid package or a great education; in fact, his degree is worthless. Colby is a cat who was used by Pennsylvania Attorney General Jerry Pappert as a decoy to expose a scheme to sell fake, online academic degrees [source: University Business]. Wayne, on the other hand, is a consultant who earned his MBA while working full time, traveling and raising a family [source: Balderrama].


From convenience to cost, earning an online degree is a popular option for students, and like traditional accredited colleges (not Trinity Southern University), paying the tuition isn't always easy. Although we should mention that while tuition rates may not change for online or on-ground students at the same school, distance learners obviously can eliminate some of the costs incurred when attending a traditional college, such as room and board, transportation and activity fees.

Earning a degree online may sound like a piece of cake, but at an accredited online college, the work and time commitment are the same as heading to campus for classes. As it turns out, so is the process for obtaining financial aid. In this article, we'll explore how to get the funds for the online education you want. (You may want to read How Online Degrees Work for more information as well.)

Before you can get your college cash, you'll need to think about accreditation, the key not only to a solid education, but also to obtaining aid to finance the cost. Keep reading to learn how to determine if an online program is legitimate.



Sorting Through the Legit and Bogus Online Degree Programs

In the world of online degrees, you'll encounter for-profit and nonprofit institutions. While the for-profit schools include the most familiar names in online teaching, such as University of Phoenix, the nonprofit programs actually offer the greatest percentage of online degrees -- 95 percent -- explained Vicky Phillips in a 2009 U.S. News and World Report article on different paths to a college degree.

Phillips, a consumer advocate for online students and the founder of the Web site, says that the nonprofit University of Wisconsin may want fewer than 100 students in its online undergraduate business program, while the University of Phoenix, a for-profit business, is trying to recruit thousands upon thousands of students [source: Frey]. Both schools are accredited, offering students a solid education, but many are not.


Phony online colleges, also known as degree or diploma mills, litter the Internet. In addition, most of these diploma mills are accredited by bogus agencies. What's a legit learner to do?

College accreditation, or a review of the quality of the education program by a recognized authority, ensures that there's a public record of the institution, which is acceptable to employers, professional associations, and other colleges and universities. It's worth the effort to make sure the Council for Higher Education Accreditation (CHEA) or the U.S. Department of Education recognizes the accrediting body.

CHEA also maintains a directory of contact information for more than 450 accrediting organizations and ministries of education in 175 countries, which have been authorized by their respective governments. You can track international online college accreditation through the International Association of Universities.

Aside from accreditation, some other tip-offs that an online program might be fake include the following:

  • Admission depends solely on your having a valid credit card.
  • You "graduate" and receive a diploma within 30 days of applying, that is, paying some flat fee.
  • You don't need to go to school after all. Your faxed resume and career experience is enough to grant you a degree.
  • You search the site for faculty and can't find any, or the faculty listed has attended schools accredited by bogus agencies.
  • [source: Phillips]

Now that you've sorted the (online) wheat from the chaff, let's talk about getting you some financial aid.


Financing Your Online Education

Piggy bank
Financial aid might help you to put more Benjamins (or Georges) into your college piggy bank.
© 2009 Jupiterimages Corporation

The good news is that the financial aid application process for an online degree is the same as that of a tradition college. That wasn't always the case though.

In the early days of distance learning, when bogus colleges attempted to gain access to federal financial aid, the U.S. Department of Education enacted the 12-hour rule, and Congress passed a companion law, the 50-percent rule. These two rules stated that in order to receive federal aid, schools had to deliver 12 hours of course work weekly, and that no more than 50 percent of students enrolled in an institution could be distance learners.


Unfortunately, as more people turned to online colleges for reasons such as flexibility and convenience, the laws prevented them from getting aid. In addition, for colleges that provide both online and on-ground courses the rules imposed a limit on the number of students they could enroll. Eventually the rules were relaxed, giving students equal access to aid and schools access to online students.

Now you'll find that the same sources of aid exist for students, whether they're taking classes on campus or behind a computer. Let's review some of the different types of aid you may apply for and -- cross your fingers -- receive.

  • Grants are a gift. As such, they don't have to be repaid, unless, for example, you withdraw from school and owe a refund. Grants often are awarded according to financial need, and students must maintain a minimum grade point average (GPA) to continue qualifying.
  • Loans allow you to borrow money for your education. Students may apply for a loan through the Free Application for Federal Student Aid or FAFSA, their college financial aid office or a local bank. Government loans require that you pay back the principal and that the government pays the interest. Private loans come from banks and generally have a higher interest rate.
  • Scholarships are awarded to students for a variety of reasons. They're often based on past academic performance, leadership, or ability in sports or the arts. Private scholarships also are given by businesses and organizations to students who show promise. Like grants, scholarships don't have to be repaid; however, some require students to maintain a minimum GPA or potentially commit to a team.
  • Work-study programs allow students to earn money to pay for their education while attending school.

Next, we'll tell you how to get your application for financial aid rolling.


Applying for and Receiving Financial Aid

Since you're planning to study online, you'll master the online financial aid process with no sweat. The first step is to complete the Free Application for Federal Student Aid or FAFSA that we just mentioned. The step-by-step application determines your ability to pay for school, and your eligibility to qualify for need-based loans and grants from the federal government. You can submit this application starting on Jan. 1; apply early and remember that federal, state and school application deadlines are often different, so be aware of the time lines.

Within three weeks of submitting the federal application, you and your prospective college(s) will receive what's called a Student Aid Report (SAR). At this point, school financial aid officers will review your application for aid to determine how much the institution will give you in scholarship and aid, and help you secure federal loans.


After being accepted to an online program and offered financial aid, you'll want to compare the offers before making a commitment. No two online colleges charge the same amount for the same degree. Similarly, not all schools will offer you the same financial aid package or terms. A school that wants you as a student will make a greater effort to put together the financing you need. Carefully compare interest rates, terms and benefits, and remember you may not even need a loan if you choose a less expensive online school.

If you do plan to take out a government or private loan, your school's financial aid office should assist you in the application process. College financial aid officers are prohibited from guiding prospective students to "preferred lenders," but will help you find the loans for your situation. Don't feel pressure to take out a loan, especially if it's tied to enrollment. Again, compare admission and loan offers simultaneously to determine the best aid package and education [source:].

If you're earning your online degree while working, ask your employer to pay for a part of your tuition. Many members of the military earn college degrees online as a benefit of their service, and recently, the U.S. Department of Defense expanded the benefit to include spouses, paying up to $6,000 for post-secondary education including distance learning.

Finally, look for other ways to finance your online degree. The College Board's Web site has a database of more than 2,300 sources of college funding, totaling nearly $3 billion in available aid.

Keep the online experience going and explore the related links on the next page.


Lots More Information

Related HowStuffWorks Articles

  • Balderrama, Anthony. "Success Stories: I Got an Online Degree." 2, 2010)
  • Best Colleges (Jan. 3, 2010)
  • Carnevale, Dan. "Congress May End Distance-Education Limit." The Chronicle of Higher Education. Feb. 7, 2003.
  • Carnevale, Dan. "Education Department Recommends Scrapping Limit on Distance Education." The Chronicle of Higher Education. April 22, 2005.
  • Carnevale, Dan. "A Federal Rule Bedevils Online Institutions." The Chronicle of Higher Education. Dec. 12, 2003.
  • Carnevale, Dan. "A Hard-Fought Win for Distance Education May lead to Few Real Changes." The Chronicle of Higher Education. Sept. 6, 2002.
  • Distance Learning College Guide. "What is College Accreditation and Why is it Important to My Education?" (Jan. 7, 2010)
  • Distance Learning College Guide. "Financial Aid for Online Education." (Jan. 3, 2010)
  • Distance Learning U. (Jan. 8, 2010)
  • Frey, Carol. "Different Paths to a College Degree." U.S. News & World Report. Sept. 1, 2009. (Jan. 10, 2010)
  • Consumer Reporting Team. "Should You Trust Your Online College's Financial Aid Officer?" Jan. 9, 2009. (Jan. 7, 2010)
  • Olivas, Jerry. "Ready, Set Launch." University Business. August 2003. (Jan. 10, 2010)
  • Online Degrees Today. (Jan. 8, 2010)
  • Phillips, Vicky. "Distance Learning, College Accreditation and Online Degrees: The Facts." Feb. 13, 2009. (Jan. 8, 2010)
  • Phillips, Vicky. "'s Top Ten Signs: College Degree or Diploma Mill." Feb. 2, 2009. (Jan. 8, 2010)
  • Phillips, Vicky. "Online College Degree Mills: How Prevalent are They?" Get Feb. 2, 2009. (Jan. 8, 2010)
  • University "The First Feline Graduate." January 2005. (Jan. 10, 2010)
  • University of Phoenix. "Financial Aid Terms." (Jan. 8, 2010)