Need-based financial aid is reserved for students whose families have lower incomes and need help paying for college. Non-need-based financial aid, on the other hand, is available to most students regardless of their families' income.
Our company receives compensation from partners seen on our website. Here's how we make money. Our research, news, ratings, and assessments are scrutinized using strict editorial integrity. Our editorial staff does not receive direction from advertisers on our website.
The cost of college has risen sharply in recent years. On average, over four years, students are paying nearly $51,000 to attend a private college or university, just under $41,000 to attend a public, out-of-state college, and over $25,000 to go to a public, in-state college.
These numbers include tuition, fees, room and board, and other expenses, yet they are still shockingly high for someone like a high school graduate to grapple with. That being said, most students seek some sort of financial aid whether it’s student loans, grants, or scholarships.
More than ever before, students are relying on financial aid to bridge the gap between tuition and their wallets. Even though it’s a necessity, the world of financial aid can be pretty confusing. Financial aid fits into several categories, and they’re easy to mix up.
There are two primary types of financial aid: need-based and non-need based. Understanding the difference is key. It can help maximize financial aid potential.
On this page:
- What is Need-Based Financial Aid?
- What is Non-Need-Based Financial Aid?
- Differences Between the Two Types
What is Need-Based Financial Aid?
Need-based financial aid is financial assistance that is only available to students who fall under a certain income threshold. This means that either they or their family does not have enough money to pay for a significant portion of college out of pocket. In simple terms, they need more help.
How the FAFSA Comes Into Play
Need-based status is determined after a student fills out the Free Application for Federal Student Aid (FASFA). The FAFSA analyzes how much money is brought to the table from the student and family (the expected family contribution, EFC).
The difference between your EFC and your tuition is your financial need. If your financial need is high, then 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 both 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.
Forms of Need-Based Financial Aid
Forms of need-based financial aid include Federal Pell Grants, Federal Supplemental Education Opportunity Grants, Direct Subsidized Stafford Loans, and Federal Work-Study jobs. There could also be other need-based grants or scholarships from state or institutional organizations.
What is Non-Need Based Financial Aid?
Non-need based financial aid is any type of financial assistance awarded to a student who does not qualify for need-based aid. By contrast, this means the student or student’s family has more income to contribute to paying for college. In other words, they don’t need it as much help.
How the FAFSA Comes Into Play
Non-need based aid is determined during the same process as need-based aid. Students fill out the FAFSA same as always, and their financial need is analyzed based on their EFC. After considering eligibility for need-based financial aid, non-need based aid is awarded.
Financial aid offices put together your package based on the FAFSA results for EFC and financial need. After exhausting any eligibility for need-based aid, non-need aid is awarded.
Generally, with a higher EFC, there’s a likelier chance of qualifying for non-need based aid.
Forms of Non-Need-Based Financial Aid
Difference Between Need-Based and Non-Need-Based Financial Aid
Aside from eligibility (which has already been discussed), the main difference between need-based and non-need based financial aid is pretty simple. Need-based financial aid comes with more benefits than non-need based aid.
This is best illustrated with a couple examples.
Federal Student Loans
These federal student loans are virtually the same to an undergraduate except for a key difference: the subsidized option is preferred by a long shot.
During school and the six-month grace period, the government will pay off interest accruing on a subsidized loan. When repayment starts, you’re left with the principal balance.
In contrast, an unsubsidized loan’s interest accrues throughout school and grace period, and the interest fully capitalizes when repayment begins.
A Subsidized Stafford Loan is a much cheaper, and more beneficial option.
Something similar can be said when comparing Pell Grants (need-based) and TEACH Grants (non-need).
A Pell Grant can be awarded to an undergraduate from any major, and it does not require repayment at all.
A TEACH Grant also does not require repayment, but it requires you to be an education major and enter the education field for at least four years after graduation.
There are more stipulations & requirements attached to a TEACH Grant as opposed to a Pell Grant.
Author: Jeff Gitlen
Your Guide to Financial Freedom
Money tips, advice, and news once a week
Join the LendEDU newsletter!Thanks for submitting!Please Enter a valid email
Student Loan Guides
Student Loan Reviews