Merit-Based vs. Need-Based Aid: What Is the Difference?

Updated on May 23, 2023

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Learn about merit-based and need-based financial aid and how you can get the support needed to fund your higher education journey.

Merit-based aid offers financial support based on a student’s academic achievements.
Need-based aid provides funds for students based on their level of financial need.
Students may receive both types of aid to fund their postsecondary studies.
There are additional financial aid opportunities beyond merit-based and need-based aid.

Most college students receive at least some financial aid to help cover tuition, housing, school supplies, and other expenses. In all, U.S. students received about $235 billion in grants, tax credits, loans, and work-study benefits in 2020-21. The average full-time undergraduate received nearly $15,000.

Here, we explain the differences between merit-based and need-based financial aid. This guide also includes information about how students can apply for and secure both kinds of aid.

What Is Merit-Based Aid?

Merit-based aid goes to students based on their academic and/or extracurricular achievements rather than their financial need. Scholarships are the most common type of merit-based aid. Students may receive scholarships from nonprofit organizations, private businesses, and colleges and universities.

When awarding merit-based aid, scholarship committees usually examine students’ grades, standardized test scores, and participation in extracurricular activities. Students may need to maintain a certain GPA throughout college to continue receiving these funds.

While many smaller colleges offer merit-based aid to help reduce tuition costs, some larger institutions do not. For example, Ivy League schools don’t offer any merit-based aid (though they do provide ample institutional need-based aid).

To find scholarships, students can look to parents’ or guardians’ employers, nonprofit organizations, and community foundations, many of which offer awards to learners who excel in various fields. Prospective students can also search online scholarship boards to find opportunities focused on their specific major or for students in certain states or regions.

According to U.S. News & World Report, the average merit-based award in 2019-20 was $11,287. About 22% of all U.S. college students received this type of aid in 2019-20.

What Is Need-Based Aid?

Need-based aid is the most common type of financial aid awarded to U.S. college students. This type of aid includes institutional grants and scholarships, state and federal grants, federal work-study, and federal loans.

The Pell Grant is the most popular need-based aid program designed for students from low-income families. Around 6.2 million students received Pell Grants in 2020-21. The maximum Pell Grant award for the 2021-22 school year is $6,495.

Students who demonstrate an elevated level of financial need may also qualify for a Federal Supplemental Educational Opportunity Grant, which provides learners with up to $4,000 a year to cover tuition and other expenses.

Most state governments also provide need-based aid through grants, tuition waivers, and federal work-study programs. Some private foundations and businesses offer need-based scholarships along with merit-based awards.

To determine your eligibility for need-based financial aid, fill out the FAFSA. Be sure to do this each year you’re in college so you can qualify for federal aid every academic year.

Merit-Based Aid vs. Need-Based Aid: How Do They Differ?

College students may receive both merit-based and need-based aid to help fund tuition and cover other education-related costs, including school supplies and housing.

Need-based aid remains the most common type of aid, whereas merit-based aid tends to be more difficult to secure. To receive merit-based aid, students must achieve and maintain a certain level of excellence in their academic and/or extracurricular activities.

Not all colleges and universities offer both types of financial aid. Merit-based opportunities are often available at smaller private schools, while students at larger public institutions tend to receive most of their financial support from need-based sources.

What Other Types of Financial Aid Are There?

Students can find other opportunities to fund their postsecondary studies beyond need-based and merit-based aid.

Private loans — usually offered through a bank or credit union — can help students fill funding gaps. However, these should be taken out as a last resort, as the terms of private loans tend to be less favorable compared to those for federal loans.

Additionally, some scholarships provide aid based on factors like a student’s interest in a certain subject. Other awards target students who belong to certain demographic groups, such as women and students of color.

Below are various types of scholarships and other financial aid resources that are neither need-based nor merit-based:

DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.

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