Need-Based Aid Vs. Merit-Based Aid


Who gets more financial aid -- a mediocre student or one with better grades? If you confidently guessed the higher-achieving student, I hate to break it to you, but that's not right. Feeling good about choosing the mediocre student? As it turns out, that's also wrong. We simply don't have enough information to be sure who would receive more between the two.

That's because there are actually two forms of financial aid: need-based and merit-based. That means there's no surefire way to estimate how much a student will receive based on their high school performance alone. Here's a look at the difference between the two, how they might come together, and how they can impact your ability to pay for college.

Need-based Financial Aid

Most need-based aid comes from federal sources, and it only takes into account a student's financial need. Test scores, athletic ability, high school GPA and the like are irrelevant when factoring in this form of assistance. This is the portion that makes it difficult to predict a package based on a student's academic performance, as eligibility is based solely on the assets and income of the student and their family.

One common form of need-based aid is the Pell grant, which is typically given to the lowest income students. State and school grants also fall into this category, as well as scholarships that are designated specifically for financially needy students. (Keep in mind that there are ways to represent your financial assets to score more aid while completing aid applications.)

Merit-based Financial Aid

By contrast, merit-based aid is largely awarded based on talent in a wide variety of categories from the academic to the artistic to the athletic and more. This is where in-depth hunting and research can yield great rewards for students. There are many different awards to apply for, so it can pay to focus on your own specific interests.

Merit-based aid will mostly consist of scholarships when your award letter arrives, and those funds may come from the school or from outside sources (each scholarship varies). When researching scholarships, though, I recommend you keep in mind that while need-based aid is exclusively need-based, merit-based assistance is not necessarily exclusive to, well, merit. Some merit-based scholarships also have a need-based component, so if you think that might lower your chances of scoring an award, consider whether your efforts could be better spent elsewhere.

For most students, the majority of the aid they receive will come from need-based decisions, but seeking assistance from other sources is something I always recommend as well — 83 percent of respondents to our College Hopes & Worries survey estimated their college costs would be more than $50,000, so exploring every source of funding is a good idea! Plus, it's crucial to study up on all of the forms of financial assistance available. Paying for college is no easy task, but with guidebooks like our 8 Steps to Paying Less for College and Paying for College, it can become one that's much more manageable.