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What is Need-Based Financial Aid?

need based financial aid

Many people struggle with payment of educational costs due to their financial challenges. Education is costly, and not all have enough financial resources to afford getting a degree. Luckily, if you can prove your need, you can get need-based financial aid to pay educational expenses. These expenses can cover tuition fees, accommodation, transportation, payments for books, supplies, and many more. Several student aid programs are based on the need, like Pell Grant, Direct Subsidized loans, etc. 

Meanwhile, if you conclude that you do not qualify for a need-based program, we discuss non-need-based options in this guide. 

Need-Based Financial Aid

You will notice the need-based aid description if you want to apply for government-aided programs like Pell Grant or Direct Subsidized loans. You might wonder what need-based financial aid is and how the Education Department figures out your need. 

When we say need, we mean the need for financial resources- money. Simply, if you lack enough money to finance your education, you can qualify for such programs. Remember that the officials will calculate your need, and you cannot get more aid than what you necessitate. The formula used to determine the real amount of, e.g., Pell Grant, is as follows:

The Need for Financial Aid = Total Cost of Attendance – Expected Family Contribution. 

Let’s break down this formula and understand its elements better. 

Cost of Attendance

As its name suggests, this element shows how much money is required to get an education. Your education can be for any duration, such as 2 or 4 years. COA covers the costs during the whole period. However, there is also a minimum limit. You need to be enrolled at school at least part-time. 

COA involves many types of expenses, including tuition fees, accommodation costs, payments for books, supplies, transportation, child care, disability-related costs, etc. 

Expected Family Contribution

Sure, the government does not pay the whole cost if you have family support. EFC is an element that is deducted from the total cost of education considering the family’s income, assets, size, etc. There exist different formulas to compute EFC, and they are different for dependent and independent students. You can check the formulas in detail here.

Programs Applicable to Need-Based Aid

need based financial aid

If you think you will qualify for need-based financial aid, it is worth checking programs built on such qualifications. 

1. Pell Grant

Undergraduate students in need of financial aid can finance their education through Federal Pell Grant. This program is a type of scholarship rather than a student loan. Hence, if you keep up with the requirements, you do not need to worry about the repayment of the award.

The amount of the Pell Grant award depends on many elements as it is need-based. Therefore, you can expect that the officials will get information regarding the Cost of Attendance, family income, size, student status, etc., to calculate how much you can receive under this program. 

So far, for the 2021-2022 education year awarded, the highest need-based financial aid for Pell Grant was around $6,500. 

The good news regarding this program is that President Joe Biden plans to increase the award amount. He mentioned in his “Plan for Education Beyond” that the award covers less percentage of educational costs compared to the ratio years ago. Hence, he noted the necessity of doubling this reward amount for students in need of financial resources. 

Biden has already started to keep his promises. In his proposed budget plan for the 2022 fiscal year, he recommended increasing the maximum award amount by $400.

 You need to fill the FAFSA form to apply for the program and stay qualified. 


Federal Supplemental Educational Opportunity Grant (FSEOG) is another need-based financial aid available to undergraduate students. Similar to Pell Grants, students need to fill FAFSA to apply for the grant. Besides, awardees do not need to worry about repayment of financial aid if they stay eligible throughout the whole period.

As it is a need-based program, again, your total Cost of Attendance in qualifying school and Expected Family Contribution play an important role in determining the award amount. However, the funds available by the school also matters. Usually, students receive between $100- $4,000 FSEOG. 

3. Direct Subsidized Loans

It is possible to get student loans, either subsidized or unsubsidized, from the government to finance your education. Subsidized loans are distributed to undergraduate students who demonstrate financial need. Meanwhile, you do not need to have financial need to get Unsubsidized loans. 

Unlike the above-mentioned two need-based financial aid programs, Direct Subsidized Loan is a debt requiring repayment. The current interest rate for these loans is 3.73% which is relatively lower than other loans, such as Unsubsidized Direct Loans or private student loans. However, the rate can change after July 2022.

The amount of loan depends on educational costs and family contribution, but it cannot be higher than the amount you need to study.

If you are interested in this need-based financial aid, you need to fill out the FAFSA form and submit it. In this way, you can find out the amount of student loan you can qualify for.

4. Federal Work-Study Jobs

Another category of financial aid based on need is federal work-study jobs. Those jobs are part-time, and they are available to both undergraduate and graduate students. However, you need to showcase the financial need and indicate that you need to work to pay your educational expenses. 

The work can be a type of service for the public or related to the field of study. It is possible to find some part-time job opportunities within the campus or outside. 

The employers can be the school, a non-profit organization, a public organization, etc. You can even work in private organizations relevant to your field of study if your school has a partnership with such organizations.

Undergraduate students usually earn an hourly salary, while graduate students can earn hourly or monthly wages.

Non-Need-Based Financial Aid

Non-Need-Based Financial Aid

If you think that you will not qualify for need-based aid as your family finances are in good standing, you can apply for non-need-based financial aid. Respectively, in this type of aid, Expected Family Contribution does not play any role. 

What matters is how much money is required for education (Cost of Attendance) and how much financial aid you got so far. Existing financial aid can be provided by the government or any other private organization.

The Non-Need Based Aid = Total Cost of Attendance – Other Aid Rewards Received

For example, imagine you need $10,000 to get an education. You also received a $2,000 award from a private organization to finance your education. In such a case, you will qualify for $8,000 worth of non-need-based financial aid.

Non-Need Based Programs 

If you do not qualify for those mentioned above four need-based financial aid programs, check the following opportunities to finance your education:

1. Direct Unsubsidized Loans

We already discussed the Direct Subsidized Loans and mentioned that they are available based on your financial need. In contrast, you do not need to prove a financial need to get Direct Unsubsidized loans. 

Both undergraduate and graduate students can use these student loans to pay their educational expenses. As this program is non-need-based, the Cost of Attendance and the aids you received so far will matter to determine the loan amount. 

You will be obliged to pay back the student loan debt once you graduate and you pass the grace period. The interest rate for Unsubsidized loans is 5.28% which is higher than the 3.73% interest of Subsidized loans. 

Keep in mind that these rates can change. To get updated information, check the official page for Unsubsidized Direct Loans

2. Direct PLUS Loan

Direct PLUS Loan is another non-need-based financial aid program. When the loan is for students – professional or graduate- it is called Graduate or Grad PLUS Loan. When the loan is for parents of undergraduate students, it is called Parent PLUS Loan

The government usually does not involve credit performance as a requirement for its financial-aid programs. However, PLUS loans are exceptions. You need to have a good credit standing to be eligible for this program.

Similar to any other student loan program, PLUS loans should be repaid. The interest rate for this loan program is 6.28% which is the highest among the options we discussed so far.

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3. TEACH Grant

Teacher Education Assistance for College and Higher Education (TEACH) grant is a program that awards up to $4,000 to students. 

As it is not distributed based on financial need, the awardees should provide a service in return. In more detail, they need to agree to serve for four years in a teaching position. Otherwise, the grant will turn into a student loan, and the awardee will be required to repay the benefit. 

Merit-Based Aid

You might also find student need-based financial aid programs that are merit-based. Merit-based programs require outstanding academic performance, such as a high-Grade Point Average (GPA). Usually, scholarships are merit-based, and they are provided by non-profit organizations, schools, or private businesses. Proving exceptional academic achievement can help to get a merit-based scholarship. However, the awardees are mostly required to maintain their academic performance throughout the scholarship period to keep their eligibility for funds.