Need Based Financial Aid
The majority of parents do not realize financial aid is broken down into two different categories. Those categories are Need Based Financial Aid and Merit Aid and they are very different. The topic can be confusing due to the fact Need Based and Merit awards come from different departments on campus. When the dust settles though they both end up in the same financial aid award letter. Unless you had a high level of understanding of how the system works, the average parent would not be able to decipher what is a need based award versus merit by looking at an award letter. This just adds to the overall confusion.
Over 90% of what we discuss at College Funding Professionals revolves around Need Based financial aid and the financial aid equation we have previously spoken about. We focus on Need Based because of its complexity compared to Merit based aid and also due to the fact that the majority of the money you receive in a financial aid award letter will be from Need Based awards.
Merit Aid comes from the admissions office on a college campus and is solely based on academic performance. This includes extra curricular activities such as volunteering and activity in school clubs etc. It is a fairly straightforward process. A prospective university will have certain internal guidelines as far as eligibility for Merit awards. These are most commonly referred to as scholarships on an awards letters. Eligibility mainly consists of reviewing a prospective students GPA, Class Rankings and Test Scores (SAT/ACT). So unlike Need Based, there aren’t a lot of moving parts when it comes to Merit. One aspect you could have some control over is if you need to write an essay for a particular award.
Similar to when a school reviews a families tax return when generating an EFC for that family on the NEED based side, when it comes to a students scores in the aforementioned areas there is nothing you can do about it. Once the rankings and GPA have been calculated and test scores documented, to use a favorite slogan “it is what it is” at that point. The one thing you can do as a family is strategizing as far as what schools give Merit awards (not every school offers Merit awards i.e. Ivy League) and what are the range of scores they are looking for in prospective award winners.
Once you have that information then you can strategize about which schools give you the best chance at securing Merit awards. Helping families understand how to go about this represents the 10% of our help here at College Funding Professionals when it comes to Merit Awards.
Need Based Awards
Need based is the total opposite of Merit. It is solely based on your family’s structure. This includes married or divorced, number of kids in college, total number living in household and finances. As we have previously mentioned, to calculate how much Need Based money your family is eligible for, you always go back to the financial aid equation (COA – EFC = NEED). This is always the starting point of any conversation dealing with Need Based financial aid.
In addition, need based awards are generated by the financial aid office of a university as opposed to merit which comes from admissions. Need Based awards do not take into account any of the academic scores (gpa, class rank, SAT/ACT) when generating awards. Simply put, if it’s not a variable in the equation then it doesn’t matter as far as Need Based. With that being said, the biggest variable in the need equation is by far EFC. Remember, there are a lot of different items that are considered when calculating your EFC as we have previously discussed.
You can have a financial aid award that consists of both Merit and Need Based money. For families with a large EFC, Merit becomes their only resource other than private scholarships. This is because they do not qualify for Need Based money due to their EFC. When you hear the term “Need Based” just remember they are referring to the financial NEED of your family. Which is based solely on the Financial Aid Equation.
The Big Mistake
The far majority of families get consumed with the cost of attendance or “sticker price” of a school. Of course that is important and the first variable in the equation (coa). But in reality the numbers families should be focusing on is their Expected Family Contribution (efc) and the NEED amount. Those are the variables and numbers that will dictate your out of pocket costs as a family.
This is a major point and an overarching theme throughout our Virtual Counselor program that we thoroughly discuss.
The below video provides a good summary of this discussion as far as Need based aid