Financial aid is awarded based on two general categories, need-based and non-need (merit) based. When people hear the term “financial aid,” they are generally thinking of financial assistance provided because of the student’s financial need.
A student’s financial need is based on her financial status and the cost of the school she actually attends. Financial status is calculated when students submit the FAFSA or the CSS/PROFILE and is assigned an Expected Family Contribution (EFC). Financial need is based on subtracting the EFC from the school’s Cost of Attendance (COA). Financial aid awarded based on this calculation is need-based aid.
A student’s need will vary according to the COA. If a student has an EFC of $10,000 and attends a school that only costs $2,000, he has no need. If he attends a school that has a COA of $30,000, he has a need of $20,000.
The majority of federal gift aid such as Pell Grants is based strictly on need. Colleges may award a combination of grants, scholarships, work-study, and loans to meet financial need. Most colleges are unable to meet 100% of financial need. The portion of need that isn’t met, is the gap between financial need and awarded aid.
The most important thing to remember about need-based aid is that need is calculated by the government and the colleges, not the family. However, families can implement financial strategies that will improve their chances of qualifying for need-based financial aid.