Need-Based vs. Non-Need-Based Financial Aid: Here’s the Difference

 February 5, 2020
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The difference between need-based and non-need-based financial aid boils down to the cost of your school and your family’s financial situation. For need-based financial aid, the federal government determines whether or not you need help paying for college based on your family’s financial situation. By contrast, non-need-based financial aid is meant to assist you financially no matter how much money your family earns.

With rising college costs, it can feel like you need as much help as possible paying for college. However, need-based financial aid comes down to the discretion of the federal government and the cost of attendance at your school. So you may not qualify for as much need-based aid as you think.

Read on to learn about both types of financial aid, and how you can get the most aid possible.

What is need-based financial aid?
How is need-based financial aid determined?
What is non-need-based financial aid?
How do colleges give out non-need-based aid?
Bottom line: How to get the most financial aid possible

What is need-based financial aid?

The need-based financial aid definition is exactly what it sounds like — it’s doled out based on your financial need. Some colleges promise to cover all or most of your full financial need, while others provide aid for less.

Each college’s financial aid office puts together your financial aid package. It could include a mix of federal, state, institutional and private aid.

Need-based financial aid might include any of the following:

  • Federal Pell Grant: Pell Grants tend to go to students that have a major financial need. Unlike a loan, it usually does not need to get repaid. The maximum award for the 2019-2020 school year is $6,195.
  • Federal Supplemental Educational Opportunity Grant (FSEOG): You can receive between $100 and $4,000 per year through the FSEOG program. However, only some colleges participate.
  • Direct subsidized loan: Interest will not start accruing on these federal loans until you’re out of school and the six-month grace period has ended.
  • Federal work-study: This program provides you with a part-time, on-campus or off-campus job, so you can earn money to put toward school or living costs. The program emphasizes jobs that either serve the public interest or which are related to your course of study.

In addition to looking at federal need-based programs, consider the loans or grants that states, private organizations and nonprofits grant to low-income students.

In Massachusetts, for instance, the MASSGrant program gives grants to qualifying state residents with a family contribution equal to or lower than $5,486. Meanwhile, the Jack Kent Cooke Foundation provides up to $40,000 per year to high-achieving students that can demonstrate significant financial need.

Whether it’s federal, state or private, need-based aid is largely based on your financial situation. Except in the case of private scholarships, your grades or extracurricular achievements don’t factor in.

How is need-based financial aid determined?

To figure out your financial need, most schools look at your FAFSA, or the Free Application for Federal Student Aid; a few schools also require the CSS Profile. After filling out the FAFSA, you’ll get an Estimated Family Contribution, or EFC.

As the name suggests, your EFC is how much your family is expected to pay toward college. The difference between the cost of tuition and your EFC is your financial need.

Let’s say a school costs $50,000 per year, and your EFC is $25,000. In this case, your financial need would be $25,000.

Most colleges will cover at least part of that $25,000 with need-based financial aid. Plus, they might provide additional non-need-based financial aid.

If your school doesn’t come through with the financial aid you need, you’ll need to make up the difference another way — like taking out private student loans or choosing a less expensive college.

What is non-need-based financial aid?

Non-need-based financial aid, like its need-based counterpart, is offered on both the federal and institutional level. Federal Student Aid (FSA), an office of the U.S. Department of Education, provides the following types of non-need-based aid:

A financial aid office might include these loans in your financial aid package after it has exhausted need-based funding. Plus, it may award merit-based grants or scholarships based on your high school performance or community service.

Some organizations even give scholarships for unusual reasons. For instance, you could win scholarship money for being a twin or winning the best DIY prom contest.

Again, whether it’s an unsubsidized loan you have to repay or a scholarship you don’t, none of the aid on this list is based on financial need.

How do colleges give out non-need-based aid?

Unlike need-based aid, non-need-based aid doesn’t look at your EFC, or estimated family contribution. Instead, your eligibility is based on the difference between the school’s cost of attendance and the amount of financial aid you’ve received so far, whether it’s from the college itself or an outside organization.

For example, let’s say your school’s cost of attendance is $20,000 per year, and you’ve received $15,000 in need-based financial aid.

In this scenario, you could qualify for up to $5,000 in non-need-based aid. Of course, you’re not guaranteed to get that $5,000 — or even anything — but you are eligible for these additional funds.

Bottom line: How to get the most financial aid possible

To some extent, your financial aid package is out of your hands. Each college sets its own policies, and the financial aid offices will notify you of its decision.

But there are important steps you can take to qualify for aid, whether it’s based on financial need or not. Here are the top six:

  1. File the FAFSA as soon as possible. This application becomes available on Oct. 1. Submit it early, as some aid is given out on a first-come, first-served basis.
  2. Find out if your school requires the CSS Profile. Some colleges ask for the CSS Profile in addition to the FAFSA. They look at this document, along with the FAFSA, to determine financial aid.
  3. Communicate with the financial aid office. If you haven’t applied yet, speak with financial aid offices to learn about their policies. If you experience changes in your financial situation after submitting the FAFSA, let them know. They might be able to adjust your award.
  4. Use the FAFSA4Caster tool. This useful tool helps you estimate the cost of attendance at colleges around the country. You’ll get a sense of how much need-based financial aid you can get from each school. Use this info to be strategic about where you apply.
  5. Do your best in high school. You could end up getting serious merit-based aid for your achievements. Schools like Boston University and Duke University offer full-ride scholarships to students with a record of academic and extracurricular achievement.
  6. Apply for outside scholarships. Many organizations at the local and national level award scholarships to students. Speak with your school counselor and browse scholarship search engines for opportunities.

By understanding the different types of financial aid — and being proactive when you apply to colleges — you can seriously reduce the cost of your education.

At some point, you may feel as if you’ve exhausted your options for both need-based and non-need-based financial aid. If this sounds like you, and you still need financial help, you may want to consider private loans.

In general, private loans shouldn’t be your first choice when it comes to paying for college, but they can make it possible to fund your education when other funding sources fall short. If you’d like to learn more about this option, take advantage of the information here at our list of best private student loans.

Sarah Sharkey contributed to this report.

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CollegeAve Disclosures

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community 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.

  1. As certified by your school and less any other financial aid you might receive. Minimum $1,000.
     
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Information advertised valid as of 9/15/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.


2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.47% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.95% APR to 12.04% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.


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Edly Disclosures

1. Loan Example:

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  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
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Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of September 1, 2022, the 30-day average SOFR index is 2.23%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
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Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.