How State Financial Aid Organizations Work

Higher Education Agencies

Most state financial aid is need-based; states often use financial aid funds to help low-income students prepare for and attend college.
Most state financial aid is need-based; states often use financial aid funds to help low-income students prepare for and attend college.
Peter Cade/Getty Images

Higher education agencies go by many names: finance authorities, coordinating commissions for higher education, student assistance commissions and more. In some states, they're run directly through a state's department of education, but it's more common for these higher education agencies to be private nonprofit organizations authorized by the state to administer financial aid funding programs.

Higher education agencies are typically run by a president or CEO overseen by a board of directors or commissioners. Even though most assistance agencies are not official government entities, they often involve elected or appointed government officials. For example, the board of the Pennsylvania Higher Education Assistance Agency (PHEAA) is made up entirely of state senators, state representatives and judges, plus the state secretary of education [source: PHEAA]. Obviously, these agencies blur the line between public and private institutions.

State higher education agencies administer many types of financial aid, including grants, scholarships, state work-study and loans. Most state aid is need-based; states often use their financial aid programs to help low-income and underrepresented students to prepare for and attend college.

For example, the 21st Century Scholars Program challenges low-income Indiana students in the sixth through eighth grades to sign and fulfill a pledge of good citizenship. In return, the state will pay for their full four-year college education at any public college in Indiana [source: SSACI]. The Minnesota Achieve Scholarship provides up to $4,000 to high school students who complete a "rigorous course of study" defined by the state [source: Minnesota Office of Higher Education].

Many states offer tuition assistance to members of the Air or Army National Guard. Florida offers 100 percent tuition at public colleges and universities. Michigan pays 50 percent of tuition per semester, up to $2,000 for each academic year [source: Air National Guard].

Higher education agencies also offer merit-based scholarships. In Maryland, the Distinguished Scholar Award gives $3,000 annually to residents who qualify as National Merit Scholarship finalists and enroll in a state college or university [source: Maryland Higher Education Commission]. Some state agencies also offer state work-study jobs with the school or local organizations.

Some state agencies offer their own state-funded student loans. To qualify, students must exhaust all other sources of financial aid, including federal loans. Participants in the New York Higher Education Loan Program can secure interest rates starting at 7.55 percent, which is considerably higher than the 5.6 percent offered by federal Stafford loans, but lower than most private lenders [source: HESC].

Since each state is different, there's an endless variety of aid available. Some states have tuition reimbursement and loan forgiveness programs for public service professionals like teachers and doctors. However, many agencies have had to cut back on financial aid programs due to state budget cuts.