[Better Off Book Preview] “Need-Based” vs. “Merit-Based” Financial Aid

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We’re continuing to share previews of our upcoming book, Better Off After College. From Chapter Two, "Early High School: Preparing for the Process," we discuss "need-based" vs. "merit-based" financial aid.


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"Financial aid is divided into two categories: need-based and merit-based. The distinction between the two types has largely to do with eligibility and how they are funded.

Much need-based financial aid is issued by the government, while merit-based aid is awarded by colleges or by private sponsors. Almost all financial aid provided by federal and state governments, with few exceptions, is need-based financial aid. Colleges award both need-based aid and merit-based aid. Many different private sponsors award scholarships with diverse eligibility requirements, ranging from religious groups, community groups, cultural organizations, national foundations such as the Bill & Melinda Gates Foundation and the Coca Cola Scholars Foundation, and private individuals, such as wealthy alumni who endow scholarship programs for their alma maters.


Need-Based Financial Aid
Need-based financial aid is awarded strictly based on a student’s financial profile, which considers the student’s family assets and income, not the student’s academic merit. (Colleges, of course, will consider academic merit when deciding whether or not a student should be admitted—but it doesn’t factor into this aid calculation.) Need based aid can include a combination of grants, scholarships, subsidized student loans, and work-study jobs.

With the exception of the Iraq and Afghanistan Service Grants, most federal aid is need-based aid, with the federal government determining eligibility solely from a given family’s finances. Private aid can be both need-based and merit-based.

Merit-Based Financial Aid
Merit-based financial aid is based on a student’s accomplishment and talents in academics, athletics, arts, and volunteer or charitable works. Merit scholarships are typically, though not always, need-blind, meaning that a student’s financial profile is not considered when determining their candidacy. Merit-based financial aid sometimes requires an application or selection via committee. Merit-based financial aid is typically awarded in the form of grants and scholarships. Often they act like a discount for the student, meant to make the college more attractive high-quality students.

Some sponsors of merit scholarships only evaluate grade-point averages, test scores, or class rank, while others may consider academic performance in addition to teacher recommendations and community involvement. Examples include:

    • Individual academic departments at a college may have scholarships specifically for promising students in a given major.
    • Some colleges automatically grant scholarships for achievements such as a particular class rank, test scores, or GPA.
    • Local businesses and civic organizations may allocate scholarships for high school students, especially those headed to specific four-year colleges in the region. "

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