What’s The Difference Between Merit And Need Based Financial Aid?
Federal Student Loans
College financial aid falls into two basic categories: need-based and merit based aid. It’s important to know the difference between the two. Merit based financial aid, also known as non-need based aid, is generally awarded based on some merit qualification. This can be academic, great grades or test scores; athletic, the ability to catch a football; or social, organizing people for a cause. Therefore, the non-need category is generally referred to as merit-based aid. Need based financial aid is based on a family’s demonstrated financial need of what they can and can not pay towards college.
Why It’s Important To Know The Difference Between Merit and Need Based Financial Aid
But it’s important to understand how the categories are basically derived based on whether or not the money is going to meet financial need. To receive need-based aid, students must demonstrate financial need.
Given that colleges and the federal government are the major sources of financial aid, we’re going to be focusing on the differences of need-based and merit-based aid as it applies to these institutions. However, keep in mind, that the same differences apply to outside scholarships awarded by foundations and community groups. Some will be based on need, others won’t require any financial eligibility.
How to Demonstrate Your Need For Financial Aid
Need-based aid from colleges and the government requires students to prove their financial need. They do this by submitting a financial aid application based on their income tax returns.
There are 2 possible financial aid applications. The most common and well-known is the Free Application for Federal Student Aid (FAFSA). Any student that wants to receive federal financial aid, include student loans, must complete the FAFSA. Most colleges use the FAFSA to decide how much of their own money, institutional money, to award to students.
The second form is called the PROFILE and used by a limited number of schools to determine how they will award their institutional aid. The PROFILE requires families to submit a lot more information about their financial status than the FAFSA. However, PROFILE schools tend to provide much more generous need-based aid.
Colleges Get to Decide Your Financial Need
The point of explaining about the two different forms is that it is the colleges and the federal government that get to decide how much financial need a student may have. The need is defined in terms of a number called the Expected Family Contribution (EFC). This is the amount the family is expected to pay for college. The difference between the EFC and the cost of the college is what colleges and the federal government considers the student’s need. Rarely, do families consider their assigned EFC a reasonable amount.
This is why families will start looking for merit aid to help pay for their EFC. The largest source of merit aid comes from the colleges. The federal government offers very little merit aid. The largest source of non-need based aid from the federal government is student loans.
Most colleges will automatically consider students for merit aid when they apply for admissions. Many incorporate potential merit aid awards as part of their Net Price Calculators. The reason for this is that most colleges offer merit aid to convince students to attend their school. Because most schools actually have to compete for students, they are essentially offering desirable students discounts to attend their institution.
Not All Colleges Offer Merit Aid
Stop and think about this for a minute. Because colleges need to fill their freshman class, they offer merit awards. This means that colleges that don’t need to worry about attracting students, are unlikely to offer merit awards at all. Just consider the Ivy League, they only offer need-based awards. No one, not even the athletes are receiving merit scholarships to attend an Ivy League school.
These colleges are likely to have a very generous definition of financial need and tend to meet 100% of need-as they define it, of course. The majority of colleges don’t meet 100% of demonstrated need. Some do a better job than others. Therefore, students looking for need-based aid should use check out the average net price by income on the College Navigator website. This, along with the college’s NPC, will give them an idea there is likely to be a large gap between their demonstrated need and actual award.
Students looking for merit aid should also check out the NPCs to see if they estimate potential merit awards. The College Navigator website also lists the percentage of students who receive institutional aid from the college. Colleges where the percentage is above 85% are likely to be providing merit aid even if it doesn’t show up in the NPC.