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Student Loans

Need-Based and Non-Need-Based Financial Aid Guide

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.

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.

Forms of need-based financial aid

Forms of need-based financial aid include:

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 LoansGraduate PLUS LoansParent 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-based
Direct Subsidized Student Loan
Direct Unsubsidized Student Loan
Pell 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.


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