Need-Based vs Merit-Based Financial Aid

Learn more about the two main types of financial aid and how to get them.

As you’re learning more about financial aid, you’ll hear the terms need-based aid and merit-based financial aid. Understanding how this aid is awarded and what type of financial aid is available to you will help you determine how to pay for your college tuition and other school costs.

Many students assume that all financial aid is based on financial need. However, there is a variety of college money available based on your academic merits and special skills, as well as from the organizations you belong to. To get the most money for college, you’ll want to understand the differences between each type of aid and how to get the amount you need to pursue your college degree.

Many students assume that all financial aid is based on financial need. However, there is a variety of college money available based on your academic merits and special skills.

The Basics on Need-Based Aid

Need-based college aid is awarded based on your family’s financial need. The Department of Education and the colleges and universities you’re applying to determine your need by subtracting your expected family contribution (EFC) form the cost of attendance (COA) at each college or university.

Because all federal aid is need-based, you must submit the Free Application for Federal Student Aid (FAFSA) form to be eligible for federal aid, as well as need-based aid from states and institutions. Some schools also require an additional form, either the CSS Financial Aid PROFILE form or a specific form created by the school.

Some need-based aid consists of education grants you don’t need to repay, while others are college loans that need to be repaid with interest. Federal loans are the largest form of financial aid, and they will likely be a large part of your college award letters.

Common examples of need-based financial aid:

  • Federal education grants
  • State grants
  • Federal Pell Grants
  • Federal Supplemental Educational Opportunity Grants (FSEOG)
  • Federal Work-Study Programs
  • Federal Loans, such as the Perkins Loan and Subsidized Stafford Loan

The Basics on Merit-Based Aid

Some money for college is awarded without regard for financial need. This type of college aid is usually awarded for a student’s academic achievements in high school, as well as for special talents and unique traits, such as musical or athletic skills. Awards and scholarships like this are usually awarded by states, colleges and universities, private groups or individuals. It’s generally intended to supplement need-based aid or help you cover your expected family contribution if you don’t have that money on hand.

Common examples of merit-based financial aid:

  • College scholarships
  • Awards
  • Tuition waivers

College Financial Aid Tips & Tactics

  • Keep a list of your achievements, special talents, awards you’re received and any organizations you or your family belongs to. All of this information will help you as you seek out financial aid. You’ll want to include your achievements and special skills in your college applications, and these, along with your organizations, will help you seek out and become eligible for college scholarships.
  • Need more college money? Consider non-need-based loans like the Parent Plus Loan, Unsubsidized Stafford Loan or private loans through a bank or other financial institution. Keep in mind that these loans will usually carry higher repayment policies and interest rates than federal loans, so be sure to compare student loans and read all the fine print. Also, with federal loans, no payments are due until after you graduate or leave the school; other loans may require you to start paying while you’re still pursuing your bachelors degree.
  • Remember, you don’t need to accept all the financial aid you’re offered. If you can complete your degree program without a specific loan by reducing your expenses in other ways or pursuing more free money like scholarships, don’t accept it.
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