How State Financial Aid Organizations Work

Nearly one-fifth of all college students in the U.S. receives some form of state-funded financial aid for school.
Nearly one-fifth of all college students in the U.S. receives some form of state-funded financial aid for school.
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The United States government is a little funny. We don't have just one centralized government, but thousands of overlapping federal, state and local governments. This complicated power-sharing arrangement is called federalism, and it's what fuses the United States of America together.

For tax purposes, however, federalism is a real drag. (You could end up owing taxes to three different entities.) But if you're trying to finance a college education, it's nice to know that there's more than one source for government-sponsored financial aid. Most people are aware of federal student aid programs like Pell grants, Stafford loans and federal work-study. But fewer people know about state-sponsored grants, scholarships, loans, work-study and college savings plans.

In 2007-2008, 47 percent of all undergraduate college students received federal student aid, and 16 percent received state-funded aid [source: NCES].

Federal financial aid is administered by the U.S. Department of Education. State-based financial aid is managed by state departments of education, state treasuries and a variety of public and private nonprofit organizations like student assistance commissions, offices of higher education, loan guarantee agencies and more.

Each state offers its own grants, scholarships, loans and more to state residents. Some of these programs are geared toward underrepresented minorities. Others are reserved for high-performing students. However, most state financial aid is need-based, meaning that a family must demonstrate a certain level of financial need to qualify.

To simplify the process for receiving state financial aid, state organizations determine eligibility for their programs using the Free Application for Federal Student Aid (FAFSA). Each state has its own deadline for submitting the FAFSA to qualify for state funds. In addition to the FAFSA, many states require separate applications for individual grant, scholarship and state work-study programs.

Let's start by looking at who is eligible to receive state financial aid. For example, do you apply to the state in which you're going to college or the state where you've established permanent residency? Keep reading to find out.