Merit-Based vs. Need-Based Aid: What Is the Difference?
- Merit-based aid offers financial support based on a student's academic achievements.
- Need-based aid provides funds for students based on their level of financial need.
- Students may receive both types of aid to fund their postsecondary studies.
- There are additional financial aid opportunities beyond merit-based and need-based aid.
Most college students receive at least some financial aid to help cover tuition, housing, school supplies, and other expenses. In all, students received about $242 billion in grants, tax credits, loans, and work-study benefits in 2019. The average undergraduate received nearly $15,000.
Below, students can learn more about merit-based and need-based financial aid, along with the differences between these two types of financial support. This guide also includes information about how students can apply for and secure both kinds of aid.
What Is Merit-Based Aid?
Merit-based aid goes to students based on their academic or extracurricular achievements, rather than their financial need. Scholarships are the most common type of merit-based aid. Students may receive scholarships from nonprofit organizations, private businesses, and/or colleges and universities.
When awarding merit-based aid, scholarship committees usually examine students' grades, standardized test scores, and participation in extracurricular activities. Students may need to maintain a certain GPA throughout their college careers to continue receiving these funds.
About 15% of U.S. college students received merit-based awards in 2018.
While many smaller colleges offer merit-based aid to help reduce tuition costs, some larger institutions do not. For example, Ivy League schools don't offer merit-based aid.
To find scholarships, students can look to community organizations and foundations, many of which offer awards to learners who excel in various fields. Prospective students can also search online scholarship boards to find opportunities focused on their specific major or for students in certain states or regions.
What Is Need-Based Aid?
Need-based aid is the most common type of financial aid awarded to U.S. college students. This type of aid includes state and federal grants, funding through work-study programs, and federal loans. The Federal Pell Grant is the most popular need-based aid program, with nearly 7 million students receiving these grants in 2019. Funds go to students whose families make less than $50,000 per year. The average student received $4,418 in Pell Grant funds in 2018.
Pell Grants and Educational Opportunity Grants are popular types of need-based aid.
Students who demonstrate an elevated level of financial need may also qualify for a Federal Supplemental Educational Opportunity Grant, which provides individuals with up to $4,000 per year to cover tuition and other expenses.
Most state governments also provide need-based aid through grants, tuition waivers, and work-study programs. Some private foundations and businesses offer need-based scholarships alongside merit-based awards.
To determine your eligibility for need-based federal financial aid, fill out the FAFSA. Be sure to do this each year you're in school so that the federal government can provide you with information about the types of aid you can access.
Merit-Based Aid vs. Need-Based Aid
College students may receive both merit-based and need-based aid to help fund tuition and other costs, including school supplies and housing. Need-based aid remains the most common type, while merit-based aid tends to be more difficult to secure. To receive merit-based aid, students must achieve and maintain a certain level of excellence in their academic and/or extracurricular activities.
Not all colleges and universities offer both types of financial aid. Merit-based opportunities are often available at smaller, private schools, while students at larger, public institutions tend to receive most of their financial support from need-based sources.
Other Types of Financial Aid
Students can find other opportunities to fund their postsecondary studies beyond need-based and merit-based aid.
Private loans, usually offered through a bank or credit union, can help students fill funding gaps. However, these should be taken out as a last resort; the terms of private loans tend to be less favorable for students compared to federal loans.
Additionally, some scholarships provide aid based on factors like a student's interest in a certain subject, though they may still have minimum GPA requirements. Other awards target students who belong to certain demographic groups, such as women or students of color.
Below are various types of scholarships and other financial aid resources that are not need-based or merit-based:
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