Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Student Loans Need-Based and Non-Need-Based Financial Aid Guide Updated May 28, 2024 3-min read Written by Jeff Gitlen, CEPF® Written by Jeff Gitlen, CEPF® Expertise: Student loans, personal loans, home loans, insurance, credit cards Jeff Gitlen, CEPF®, is the director of growth at LendEDU. He graduated from the Alfred Lerner College of Business and Economics at the University of Delaware. Learn more about Jeff Gitlen, CEPF® More than ever, students rely on financial aid to bridge the gap between tuition and their wallets. The two primary types of financial aid are need-based and non-need-based. Understanding the difference can help you maximize your financial aid potential. Table of Contents Skip to Section What is need-based financial aid?What is non-need-based financial aid?What are the differences? What is need-based financial aid? Need-based financial aid is financial assistance available to students who fall under a certain income threshold. How FAFSA determines need-based financial aid Need-based status is determined after a student fills out the Free Application for Federal Student Aid (FASFA). The FAFSA analyzes the amount of money the student and family contribute—known as their Student Aid Index (SAI). The difference between your SAI and your tuition is your financial need. If your financial need is high, you’re more likely to qualify for need-based financial aid. A school’s financial aid office will put together a financial aid package based on your financial need and available funding. The greater your need (and the earlier you submit the FAFSA), the more likely you are to receive a beneficial aid package. Read More Cost of college in the U.S. Forms of need-based financial aid Forms of need-based financial aid include: Federal Pell GrantsFederal Supplemental Education Opportunity GrantsDirect Subsidized Stafford LoansFederal work-study jobs Other need-based grants or scholarships may be available from state or institutional organizations. What is non-need-based financial aid? Non-need-based financial aid is financial assistance awarded to a student who does not qualify for need-based aid or the additional amount offered to students whose need-based aid isn’t sufficient for their college costs. How FAFSA affects non-need-based financial aid Non-need-based aid is determined during the same process as need-based aid. Students fill out the FAFSA, and their financial need is analyzed based on their SAI. After considering eligibility for need-based financial aid, the government awards non-need-based aid. Financial aid offices put together your package based on the FAFSA results for your SAI and financial need. After exhausting eligibility for need-based aid, non-need-based aid is awarded. Forms of non-need-based financial aid Non-need based financial aid includes Direct Unsubsidized Stafford Loans, Graduate PLUS Loans, Parent PLUS Loans, and the Teacher Education Access for College and Higher Education (TEACH) Grant. Differences between need-based and non-need-based financial aid Need-based financial aid comes with more benefits than non-need-based aid. Type of aidNeed-basedNon-need-basedDirect Subsidized Student Loan✅❌Direct Unsubsidized Student Loan❌✅Pell Grant✅❌TEACH Grant❌✅ Federal student loans The differences are apparent when we consider Subsidized (need-based) and Unsubsidized (non-need-based) Stafford Loans. These federal student loans are similar for an undergraduate except for the way interest is handled: During school and the six-month grace period, the government will pay the interest that accrues on a Subsidized Loan. When repayment starts, you’re left with the principal balance. An Unsubsidized Loan accrues interest throughout school and the grace period, and the interest capitalizes when repayment begins. A Subsidized Stafford Loan is a cheaper option. Grants A Pell Grant is need-based, and TEACH Grants are non-need-based. Pell Grants are available to undergraduates from any major and don’t require repayment. TEACH Grants also don’t require repayment, but they also require students to be education majors and enter the education field for at least four years after graduation. TEACH Grants have more stipulations and requirements than Pell Grants Read More Am I eligible for financial aid?