Need-based financial aid is a type of funding for college available to low-income students. Rather than taking your grades or talents into account, these scholarships, grants and student loans are offered based on your family’s income, along with other financial factors.
How does need-based financial aid work?
Need-based financial aid works by offering funding based on your family’s finances. It’s meant to cover what the school considers to be your financial need.
Depending on the school and type of aid, the following factors usually influence your eligibility for need-based aid:
Number of siblings in college
Other financial assets, like stocks, bonds and savings
Monthly housing costs
Family medical expenses not covered by insurance
How does my school calculate my financial need?
Usually, schools use your expected family contribution (EFC) to determine your financial need. Your EFC is the amount of money your school thinks your family can afford to put toward a year of your education, regardless of the cost of attendance (COA).
Here’s how schools calculate your need-based aid:
Cost of attendance – expected family contribution = Financial need
That number is the maximum amount you can receive in need-based aid. If you go to a school that meets 100% of financial need, it’ll cover this with a combination of scholarships, grants and loans. Otherwise, you might need to use a combination of need- and merit-based aid as well as student loans to cover the cost.
How do schools know how much my family can contribute?
Typically, schools calculate your EFC based on the answers you provided in the Free Application for Federal Student Aid (FAFSA) or the College Scholarship Service (CSS) Profile. You can get an estimate of your EFC based on the FAFSA by using the FAFSA4caster tool, which is available on the Federal Student Aid website.
Common types of need-based financial aid
The following types of financial aid are based on need:
Federal Supplemental Educational Opportunity Grants (FSEOG). Offered by the Department of Education, these grants range from $100 to $4,000 and are given to students with extreme financial need.
Most college and private grants. These grants offered by your school or outside organizations are typically based on financial need, rather than merit.
Federal work-study. How much work-study you receive through this federal program depends on your financial need.
Direct Subsidized Loans. These loans don’t gain interest during deferment and are offered to undergraduates based on financial need.
Interest-free student loans. Some private organizations offer loans with 0% interest to students based on financial need — though many also consider academic merit.
Some scholarship programs also consider a combination of financial need and merit when you apply, though they aren’t strictly need-based financial aid.
Do I have to pay back need-based financial aid?
It depends on the type of financial aid you receive. You don’t have to pay back grants or scholarships. And you pay for work-study with labor, rather than money. But you have to pay back any loans in your name, even if the amount you received is based on financial need.
How do I apply for need-based financial aid?
Generally, you need to fill out both the FAFSA and the CSS Profile to be considered for need-based financial aid. Check with your school’s financial aid office first to see what’s required. Not every school accepts the CSS Profile, and some might require an additional application for certain need-based programs.
Maximize the amount of need-based financial aid you receive with these pointers:
Apply early. Some need-based programs are offered on a first-come, first-served basis. Getting your college application, FAFSA and CSS Profile in as soon as possible increases your chance of getting all the funding you can qualify for.
Fill out the CSS Profile if possible. This application for private aid considers more factors in your family’s finances than the FAFSA and might give you a lower EFC.
Ask about need-based aid applications. Some schools automatically offer students all of the need-based aid available, while others might require a separate application.
Look locally. Check with your state and city to see if you can qualify for need-based aid available to residents of your area. With a smaller pool of applicants, you could have a better chance of qualifying.
Can I still get aid after my need is met?
You can. If you’ve maxed out your need-based aid, you can apply for the following types of aid:
Teacher Education Access for College and Higher Education (TEACH) Grants. TEACH Grants are available to education students at participating colleges and come with a commitment to work in an area with high need for a certain number of years.
Direct Unsubsidized Loans. The next-best federal loan for undergraduate and graduate students after subsidized loans.
Direct PLUS Loans. Federal loans for parents and graduate students with no annual limit.
Income-share agreements. A student loan alternative that covers your COA in exchange for a percentage of your salary over a fixed number of years after you graduate.
Private student loans. When all else fails, taking out a student loan from a private lender can help pick up the slack when these other types of aid fall short of meeting your school’s COA.
Need-based financial aid is based on the amount your school thinks your family can contribute toward your education. But that doesn’t guarantee you’re going to receive up to 100% of that amount. You might need to apply for more need-based aid or consider other options to cover your full COA.
Need-based aid is based on your family’s financial situation, while merit-based aid considers factors like your grades or talents — such as athletic or artistic ability. Generally, grants are based on need while scholarships are based on merit, though some have both types of requirements.
Schools that only have need-based aid might not offer funding to students who come from high-income families — usually over $200,000. But there’s no maximum income at schools that offer merit-based funding. And you can always apply for private funding to get financial aid even if your family exceeds your school’s income limit.
Generally, no. Need-based aid doesn’t come with GPA requirements, so there’s usually no situation where your grades would affect your eligibility or require you to pay it back.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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