What is Need-Based Financial Aid?
Need-based financial aid is distributed by the federal government, as well as through state governments and institutions like colleges.
Your eligibility for need-based financial aid is determined using the Free Application for Federal Student Aid (FAFSA). In some situations, you may need to submit an additional form, such as a CSS Profile. This depends on your state and the school where you’re applying.
Here are the most common sources of need-based financial aid to be aware of:
- Federal Pell Grants
Federal Pell Grants are awarded to undergraduate students who show significant financial need. They are typically only awarded to students who have not earned a bachelor’s, graduate, or professional degree.
Pell Grants are the most common type of need-based student aid in the United States, with 32% of undergraduate students receiving funds in 2017-18 (collegeboard.org). The maximum Pell Grant award for the 2018-19 school year was $6,095, as reported by studentaid.gov.
- Federal Supplemental Education Opportunity Grants (FSEOG)
If you received a Pell Grant but still need funds for college, you may qualify for the FSEOG program. Approximately 3,800 colleges and educational institutions participate in the program.
Federal Supplemental Education Opportunity Grants award between $100 and $4,000 a year per student. These grants are intended to supplement Pell Grants for students who show exceptional financial need.
- Federal Work-Study Program
The Federal Work-Study Program works differently from other grants and financial aid. Rather than providing you or your college with money directly, the federal government can provide you with part-time work under this program.
With an award from the Federal Work-Study Program, you can help pay your educational expenses with the money you earn. The program focuses on community service work, as well as jobs related to the student’s degree.
- Direct Subsidized Loans
Federal student loans—subsidized or unsubsidized—are a common way to pay for college. With a Direct Subsidized Loan, the U.S. Department of Education pays the interest on your loan, as long as you meet certain requirements. This type of loan is available to undergraduate students who show financial need.
- Institutional Grants
Your college, university, or educational institution may offer its own need-based grants. You can contact the school’s financial aid office to find out what kind of need-based support they may offer.
- State Grants
Your state may award you with a need-based grant for college. However, states vary and many state grants take merit and other factors into account, as well. Most states use the FAFSA to determine financial need and eligibility for grants, but some have their own applications. Your school’s financial aid office can help you determine whether you need to fill out a separate application for state financial aid.
Do You Have to Pay Back Need-Based Financial Aid?
Whether you have to pay back your need-based financial aid depends on the type of financial aid you received:
If you received a need-based grant to pay for college, you typically will not have to pay back this amount. Grants are considered “gift aid”, which means the money is yours to keep, as long as you use it as directed by the program that issued the reward.
There are exceptions to this rule, however. For example, if you withdraw from school during the term for which a grant was awarded, you may be required to return part of the grant.
When you receive a need-based grant, make sure you read the terms of your agreement carefully to make sure you understand the requirements.
Subsidized federal loans are a great option if you need help paying for college and can show financial need. Unlike grants and other gift aid, however, all loans must be paid back. The benefit of subsidized student loans from the federal government is that the Department of Education will help pay the interest on your loan.
How to Apply for Need-Based Financial Aid
To begin the financial aid journey—including applying for need-based financial aid—you need to fill out the Free Application for Federal Student Aid (FAFSA).
Ideally, you should begin filling out your FAFSA as soon as it opens, in your senior year of high school. You can send the FAFSA to a number of schools which will use that information to create a financial aid package.
You typically will not receive the financial aid package until you’ve been accepted to the school, however, so make sure to start applying to the schools on your list at the same time.
If you’re still in high school, you’ll need your parents’ tax information for the FAFSA. This is what financial aid offices will use to calculate your financial need as a student.
If you’re not in high school, and you file your taxes as an independent (no one claims you as a dependent on their taxes), you’ll need to provide your own tax information, instead.
Do I Qualify for Need-Based Financial Aid?
Whether or not you qualify for need-based financial aid depends on your financial need as a student.
Most schools determine your financial need with the same math equation:
[Cost of Attendance] – [Expected Family Contribution] = [Student Need]
Cost of Attendance
Cost of attendance (COA) is a figure provided by the financial aid office of your college. It is an estimate of your total cost of attending the school for one year, including tuition, room and board, supplies, and even transportation. Everything you might need to pay to attend the school is included in your estimated cost of attendance.
Expected Family Contribution
Your expected family contribution (EFC) represents your family’s financial strength, and in turn, their ability to support your education financially. The EFC is calculated according to a strict formula which is established by law (FAFSA.ed.gov).
It is calculated based on your or your family’s taxes, size, and the number of members who are attending college. The FAFSA may use your tax information or your parents’ information to determine EFC. This depends on if your parents claim you as a dependent on their taxes, or if you file as an independent.
Despite common misconceptions, your EFC figure is not the amount of money you will be required to pay out of pocket for college.
Finally, by subtracting your EFC from your COA, college financial aid offices and the U.S. Department of Education calculate your student need.. This number represents your financial need as a student. Student need is the essential number used to determine how much you can receive in need-based aid.
Here’s an example:
Your college costs $45,000 per year to attend (including everything described above as cost of attendance). Based on your and/or your family’s taxes, your EFC is estimated at $8,000. In this example, your student need would be $37,000.
Most schools will offer to cover at least part of that $37,000 student need in the form of need-based aid. They may also offer non-need-based aid and other solutions. However, you may still be left with an amount to cover another way, or you may have to shop for a less expensive college.
Need-Based vs. Other Types of Financial Aid
Need-based aid is only one of the types of student aid available. Two other types you’ll need to consider are merit-based aid and non-need-based financial aid.
Merit-Based Financial Aid
Unlike need-based financial aid, merit-based aid is based on your performance as a student. This includes academic performance as well as your performance as an artist, athlete, musician, and more. Some merit-based scholarships and awards will take your financial situation into account, but many will not.
This type of financial aid includes the following:
- College scholarships
- Institutional scholarships
- Tuition waivers
Non-Need-Based Financial Aid
Like the name implies, non-need-based aid is not based on your financial need. However, it also differs from merit-based aid in that it isn’t based on your performance as a student.
Non-need-based aid includes the following:
- Direct Unsubsidized Loans
- Federal PLUS Loans
- TEACH Grants
- Iraq and Afghanistan Service Grants
You may even be eligible for non-need-based aid based on unusual factors, such as being left-handed or having red hair.
Non-need based is not based on your EFC. Instead, it is offered based on the difference between the school’s cost of attendance and the amount of financial aid you’ve received so far.
Using the example from before:
Your cost of attendance is $45,000, with a student financial need of $37,000. Based on your estimated family contribution, you’ve been offered $20,000 in need-based financial aid. The amount you’re eligible for in non-need-based aid is now $17,000. This doesn’t mean you’ll receive $17,000 in need-based aid; it only means that is the maximum amount you can receive.
How to Maximize Your Financial Aid
Need-based financial aid can go a long way in paying for college. But in order to get the most financial aid possible, you’ll need to be strategic. Here are some tips for maximizing your need-based financial aid, as well as other sources of financial aid for school:
- File Your FAFSA Fast
File your FAFSA as soon as possible. The application opens in the fall of your senior year of high school, and it’s important to submit the form quickly. Financial aid—especially need-based aid—is often distributed on a first-come, first-served basis.
- Communicate with Your Colleges
Don’t be afraid to call the financial aid offices of the colleges where you’re applying. You’ll want to find out if they require any additional information or paperwork for financial aid. You may need to file a CSS Profile or submit other information to apply for financial aid.
- Apply for Outside Scholarships
There are countless institutional scholarships, as well as local and national grants, that could help you pay for college. The best way to find out about scholarships that might apply to you is by talking with your financial aid office or counselor and browsing scholarship databases.
- Compare Financial Aid Packages
Each school where you apply and send your FAFSA will put together a financial aid package and offer. Some schools will offer more than others. As you receive financial aid package offers, pay attention to the numbers and compare them to one another. You may find that one school comes out head and shoulders above the others.
In addition to these tips, the best way to get the most financial aid possible is to perform well during high school. Many colleges and universities are willing to offer full tuition to exceptional students who show talent in academics, sports, and in other fields.
Keep in mind that if need-based aid, non-need-based aid and merit-based aid don’t cover the total cost of attending college, you still have the option of private loans. To minimize the amount of debt you have after college, you might also need to consider less expensive colleges.
With all of these factors in mind, you can use need-based aid as the cornerstone of your plan to pay for college.
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College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. As certified by your school and less any other financial aid you might receive. Minimum $1,000. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation. This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 5/18/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.