Financial Aid

What is Need-Based Financial Aid?

Learn about the difference between need-based aid and merit-based aid is, what exactly need-based aid, as well as what financial need is. Also, learn how colleges decide need-based aid, and what that means about need-based aid.
Student applying for financial aid with the FAFSA

Within the college admissions and financial aid process, there are two categories of financial aid. One is called merit-based financial aid, which is given to students based on some demonstrated skill or achievement, such as good grades, athletic ability, or artistic talent. It usually doesn't take finances into consideration, and is often awarded by the admissions office. The other type of financial aid is called need-based.

What is need-based financial aid?

Need-based financial aid is composed of grants, work-study, and federal loans, and is offered to students based on their financial need, as well as the college's financial aid budget and enrollment goals. It's funded by the federal government, state governments, and colleges and universities.

What is financial need?

A student's financial need is determined by the income, asset, and family size data reported on the FAFSA and any other financial aid applications submitted. Colleges input each student's financial information into a standard formula. The formula calculates a student's Student Aid Index (SAI), which is a number intended to indicate the family's financial strength. Colleges subtract each student's SAI from the college's total cost of attendance, and the remaining difference is the student's financial need, also called financial aid eligibility. Financial need demonstrates, in theory, how much money a student needs in order to pay for one year of expenses at that school.  


How do colleges decide each student's need-based financial aid?

Once a college determines each student's financial need, they decide how much need-based financial aid to offer. Some federal and state funds, like the Federal Pell Grant, are given strictly based on the student's SAI, and colleges must follow guidelines set by the federal government to award them. Other funds, like the college's own financial aid money, are offered based on models and strategies that the college creates.

A handful of colleges are able to give every student the full amount of their financial need, called "meeting full need." Unfortunately, most colleges don't have the financial aid budget to do that, so they must make decisions based on how they want to build their incoming class. If, for example, a college wants to recruit more engineering majors, or students from the Midwest, or musicians, they might offer more need-based financial aid to those students.

What does this mean about need-based financial aid?

Essentially this means that even a student who qualifies for a lot of need-based financial aid, meaning they have high financial need, may not receive a lot of need-based financial aid. Beyond some federal and state aid, the rest of the financial aid package offered is really up to the school.

If you have questions about a financial aid offer, and how the college determined it, you can reach out to the financial aid office. They may not have a full explanation, but they may be able to give you an idea of how they determined the funds you received. And of course, if you have general questions about financial aid, reach out to us anytime here at MEFA at (800) 449-MEFA (6332) or