Merit-Based vs. Need-Based Financial Aid


Updated April 12, 2023

Merit-Based vs. Need-Based Financial Aid is an advertising-supported site. Featured or trusted partner programs and all school search, finder, or match results are for schools that compensate us. This compensation does not influence our school rankings, resource guides, or other editorially-independent information published on this site.

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Learners often need help understanding financial aid applications. This guide explains the difference between merit-based and need-based financial aid. Students may qualify for one or both aid types.

Merit-based scholarship programs award funds based on academic achievement. Need-based scholarships assist learners who demonstrate financial need.

Financial aid is an umbrella term encompassing many types of funding. Grants, loans, and scholarships are three of the most common types of aid. This guide covers examples of merit-based aid and need-based aid.

Merit-Based Financial Aid

Learners with good grades and extracurricular involvement often qualify for more scholarships. Many colleges offer institutional awards. Students can also receive merit-based financial aid from private companies and organizations. The following section answers common questions about merit-based financial aid.

Q. Who is Eligible for Merit-Based Aid?

Each school and academic department sets unique requirements for merit-based aid programs. Students should contact prospective schools for details. If a different school offers a student more merit-based aid than their top-choice school, they can negotiate for more aid. Colleges may offer more aid to entice talented learners to attend.

Q. Do All Schools Offer Merit-Based Aid?

Not every school offers merit-based aid. The amount of available aid varies by school. Contact a school's financial aid department for specific information. When speaking with the financial aid department, students should clearly state their financial needs. Some schools also consider financial need when awarding merit-based scholarships. Learners may also qualify for departmental scholarships.

Q. How Do I Apply for Merit-Based Aid?

Application requirements for merit-based aid vary by program. Most institutional scholarship applications need official high school transcripts. Schools may consider applicants' high school GPA and graduation ranking. Merit-based scholarships from companies and organizations may consider applicants' community involvement. Applications often require a short essay and recommendation letters. Merit-based aid for an activity such as choir may require an audition.

Need-Based Financial Aid

The difference between merit-based and need-based financial aid is that need-based aid programs consider applicants' financial situation. Some types of need-based aid ask applicants to submit their guardian's tax returns. Independent students submit their tax returns. This section answers three common questions about need-based financial aid.

Q. Who Is Eligible for Need-Based Aid?

When determining a student's eligibility for need-based aid, the Federal Student Aid office considers the applicant's cost of attendance (COA). The Federal Student Aid office also calculates each student's expected family contribution (EFC) based on tax information.

If the learner's COA exceeds their EFC, the student may be eligible for federal need-based aid. Institutions may use their own assessment procedure to determine need-based aid eligibility. However, many schools use students' FAFSA results to award this type of aid.

Q. Do All Schools Offer Need-Based Aid?

Many schools offer need-based aid. But not every school provides this type of assistance. The amount of available need-based aid varies each year. Available aid amounts may depend on donations or government funding. For example, a cut in federal spending could impact a public institution's ability to offer need-based aid. Students should check with their prospective school's financial aid office for information about need-based aid availability.

Q. How Do I Apply for Need-Based Aid?

Learners submit the FAFSA to apply for government-funded aid, such as subsidized loans and grants. The federal government distributes need-based aid based on information that applicants provide on their FAFSA. Colleges and universities often use the FAFSA to determine eligibility for institutional aid. Private companies and nonprofits may also run need-based aid programs.

Do Merit Awards Affect My Financial Aid?

Some schools displace grants and scholarships with students' private scholarships. This reduces the amount of institutional funding learners receive. Before applying for private scholarships, students should understand the terms. Learners should contact their school's financial aid department to ensure they do not participate in scholarship displacement.

But receiving merit-based scholarships does not generally impact a student's need-based aid eligibility. Applying for both need-based and merit-based awards typically results in a more attractive financial aid package. The federal government also allows students to apply aid to living expenses.

Students can receive both merit-based aid and need-based aid. For example, learners can receive a Federal Pell Grant and a basketball scholarship. Applying for various scholarships and grants can help students reduce student loan debt.

What Colleges Award Merit-Based Aid to the Most Students?

The amount of available merit-based aid varies by school. Generally, private colleges award more merit-based scholarships than public schools. But private colleges tend to cost more than public universities. College Transitions regularly updates a table outlining the average merit-based aid that many schools provide. The table also lists the percentage of first-year students who received aid for the 2019-20 school year.

Tips for Maximizing Merit-Based Aid

Students can maximize their financial aid to minimize debt despite the differences between merit-based and need-based financial aid. Learners can also leverage their qualifications to receive more merit-based aid. Along with earning a strong GPA and pursuing extracurricular activities, learners can follow the strategies below to receive the most aid possible.

  1. 1

    Fill Out the FAFSA

    All students should fill out the FAFSA, even those who do not believe they qualify for federal aid. Some schools require the FAFSA for merit-based scholarships. Most students complete the form in 45-60 minutes.
  2. 2

    Do Your Research

    Students should speak with their prospective school's financial aid department. Before enrolling, learners should have the most accurate and recent information about merit-based scholarship availability.
  3. 3

    Apply to Schools Where You Are a Strong Candidate

    Many schools offer merit-based scholarships to a specific percentage of applicants. Schools or departments may provide merit-based scholarships based on achievement in certain areas, such as athletics or art. Learners should research which schools offer scholarships that align with their qualifications.
  4. 4

    Apply to Schools That Are Generous With Financial Aid

    Some schools offer more robust financial aid packages than other institutions. Prospective students should research which schools offer the most funding. Learners should also research departmental scholarships.
  5. 5

    Pay Attention to the Fine Print

    Merit-based scholarship recipients may need to fulfill extra requirements. For example, many renewable merit-based scholarships need recipients to maintain a certain GPA. In addition, accepting certain scholarships may disqualify students from receiving others.
Portrait of Tessa Cooper

Tessa Cooper

Tessa Cooper is a freelance writer and editor who regularly contributes to international and regional publications focused on education and lifestyle topics. She earned a bachelor's in public relations from Missouri State University and is passionate about helping learners avoid high student loan debt while pursuing their dream major. Tessa loves writing about travel and food topics and is always planning her next meal or vacation.

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