What Is Need-Based Financial Aid?

Unlike a student loan, financial aid almost never has to be paid back.

Financial aid is a type of funding that is mostly available to college students and post-secondary level students to help pay for their college. It can reduce the amount you borrow in student loans, and in some cases completely eliminate the need for a loan. Financial aid can be awarded based on the need and merit of the student. It can be disbursed in the form of a grant, a scholarship, a work-study arrangement, or in some cases, as loans. What is need-based financial aid and how do you qualify for one? If you’re planning to pursue a college degree, having a clear plan to fund it is in your best interest.

What Is Need-Based Financial Aid?

Need-based financial aid is a type of aid available to students based on their family’s financial conditions. It is given to students to help pay for their college fees and expenses. Aid providers will consider your family’s income and expenditure, amongst other factors, to assess the financial standing of the student and their family. Though grades do not matter, aid providers need to see a satisfactory academic performance to make sure you will continue your education.

Need-based financial aid can be awarded in the form of:

  1. Pell Grants
  2. Federal Supplemental Educational Opportunity Grant
  3. Scholarships
  4. Work-Study
  5. Direct Subsidized Loan

Do I Qualify For Need-Based Financial Aid?

You qualify for a need-based scholarship if your cost of attendance is more than your expected family contribution. The cost of attendance (COA) is calculated by taking into account the following factors:

  1. College tuition and fees
  2. Living expenses like room and boarding
  3. Cost of books, supplies, transportation, library fees, and miscellaneous academic expenses like a reasonable laptop, etc
  4. Personal allowance or allowance for dependent care
  5. Disability costs if applicable

After estimating your costs of attendance, your expected family contribution (EFC) is calculated. Aid providers look at the following factors to calculate the EFC:

  1. Family size and income, including untaxed income
  2. Siblings in college or about to start college
  3. Financial assets like savings, bonds, stocks, etc
  4. Monthly running costs of the house
  5. Tax returns
  6. Medical expenses not covered by insurance

After going through a documented proof for the expected family contribution, your loan provider will use the following formula to calculate how much loan you may receive:

Cost Of Attendance (COA) – Expected Family Contribution (EFC) = Need-Based Financial Aid

You must submit a Free Application For Federal Student Aid (FAFSA) to be considered for a financial needs program. How much financial aid you receive is determined by the financial aid office at your college or university. Many colleges and educational institutes will also ask you to fill out the College Scholarship Service OR CSS Profile to get more details about your FAFSA application. Unlike the FAFSA, your CSS is not free and you will need to pay a certain amount to get submit your application.

Keep in mind that having an EFC less than the COA does not automatically qualify you for a need-based financial aid program. Many of these programs work on a first come- first served basis and may not cover the entire difference between the COA and the EFC. Hence, it is better to start your application as early as possible so you can arrange the funds for your education well before time.

Need-Based Financial Aid Income Limits

The application for the need-based financial aid does not specify an income limit for applicants to be eligible to receive the aid. Every student should apply for financial aid, regardless of their family’s current income and financial status. FAFSA does, however, it does apply a cap on the income limits of your family so that you do not have to pay for college out of your own pocket at all. This income cap is set at $27,000 for the year 2021-2022. If your family makes less than or equal to this amount then you are not required to pay a single penny towards your college tuition.

Do I Have To Pay Back Need-Based Financial Aid?

Whether you have to pay back the need-based financial aid or not is dependent on the type of aid your receive. You do not have to pay back need-based financial aid that you receive in the form of a grant or scholarship, but you will have to pay back any loans that pay towards your college funds.

Should I Apply For Need-Based Financial Aid?

The National Center For Education Statistics states that of the total number of students enrolling in college, 32 percent do not apply for financial aid because they feel they will not qualify for it. This is a big mistake as many it can affect your future prospects of getting aid as well. Unless you can pay for your higher education comfortably without having to sacrifice anything else, you should apply for financial aid before enrolling.

Why should you apply for financial aid? To begin with, the application for finance is free of cost. Even if you have to fill out the CSS form, it is not a lot ($16 to $25) and if that’s too much, you can apply for a CSS fee waiver. In fact, you are directly eligible for a fee waiver if your parents live in the US and you are a first-year undergrad student. The chance to secure financial aid for almost no application cost should not be given up.

Secondly, many educational institutes no longer let you apply for financial aid if you didn’t do so in your freshman year. So not applying for financial aid is a big risk in case your family’s financial condition changes. For instance, if one of your parents loses their job or somebody in your family is diagnosed with a medical condition, then you might not be able to apply for financial aid if you didn’t do so in your first year.

The earlier you apply for financial aid, the better are your chances of securing funds for your college. Even if you have to get a student loan, you might get better interest rates if the lender sees that you had applied for need-based financial aid earlier.

In short, you should apply for financial aid as you never know when your family gets in deep waters and their financial conditions change. It is better to apply and be safe than not apply and be sorry later.

How Much Financial Aid Can I Get Per Semester?

The amount of financial aid you can receive is determined by your institute’s financial aid office. The information you give in your FAFSA form is used to calculate how much you actually need in college funds. The federal Pell Grants can award up to $6, 345 in financial aid per semester for the year 2020-2021. The amount you receive in scholarships will vary between scholarships and institutes. Under the FSEOG, you can get between $100 to $4,000 per year, subject to your financial conditions. So how much financial aid you receive per semester depends on the aid provider as well as your institute and financial conditions.

Need-Based Financial Aid Calculator

You can calculate how much need-based financial aid you can qualify for using an online calculator. You will need to enter detailed information like your family’s income tax returns and financial assets to get a better estimate. Some resources are listed below:

  1. Net Price Calculator From Harvard College
  2. Financial Aid Calculator from SavingForCollege.Com
  3. Financial Aid Calculator from Cornell University
  4. Tools And Calculator from BigFuture


Need-based financial aid is given to students whose families are not financially strong and would not be able to afford to pay their tuition or college fees by themselves. You must submit a FAFSA form to be considered for financial aid.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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