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What is need-based financial aid?

Funding based on your family's finances.

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:

  • Family income
  • Family size
  • Number of siblings in college
  • Other financial assets, like stocks, bonds and savings
  • Monthly housing costs
  • Tax returns
  • Untaxed income
  • 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:

  • Pell Grants. These federal grants of up to $6,195 for the 2019-2020 academic year are directly based on your EFC and school’s COA.
  • 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.

4 tips to qualify for need-based aid

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:

  • Merit-based scholarships. Many schools and private programs offer scholarships based on academic achievement or talent.
  • 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.

Bottom line

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.

You can learn more about how paying for school works by checking out our guide to student loans.

Frequently asked questions

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Anna Serio was a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY. See full bio

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Anna has written 250 Finder guides across topics including:
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