Private Colleges – Merit Aid vs. Need-Based Aid

When you are looking at private colleges, there are two types of financial assistance that may be offered – merit aid and need-based aid.

The beauty of merit aid is that it has nothing to do with how much a college thinks you can afford or your actual ability to pay for your kid’s college.  Instead, it is based solely on academic/achievement factors.  The basis of the awards do vary quite a bit from school to school.  Some schools only look at GPA and ACT/SAT scores.  Other schools take a more holistic approach, considering the student’s grades, course load, test scores, extracurriculars, community service and leadership potential.  Some schools come right out and tell you what a student will be eligible for on the college website using a grid where you can see what a particular GPA and ACT score will earn the student in merit aid.  Some schools give a vague statement like Presidential scholarships range from $5,000 to $15,000.  Some schools don’t even give that much information.  Typically a school will send a merit scholarship offer either with the acceptance packet or a few weeks later.  Obviously, the more competitive the school, the more difficult it will be to earn a merit scholarship.  If your child is fortunate enough to be offered merit scholarships at the schools of his/her choice, It will be a great feeling to have the acceptance letter in hand along with a merit scholarship offer.  Then you will be able to breathe easier, knowing there is at least some chunk of the bill you will not have to pay for!  Most merit scholarships are renewable as long as the student maintains a specified GPA.  The ones I have seen are definitely doable for most students who are bright enough to be offered a merit scholarship in the first place, just as long as they don’t throw responsibility out the window when they get to college.

Need-based aid is an entirely different animal.  It is always based, at least in part, on the Free Application for Federal Student Aid (FAFSA).  This could be called the “show me the money” report.  The FAFSA looks first of all at whether the student is or is not someone else’s dependent.  If not, then the only money the FAFSA is interested in is the student’s – how much has the student earned in the prior tax year?  How much does the student have is checking or savings?  How much does the student have in investment accounts in his/her name?  If the student is a dependent, then the FAFSA is also interested in the parent or guardian’s money.  The same questions will be asked of both the student and his or her parents/guardians.  The FAFSA determines the Expected Family Contribution (EFC), which looks to be how much a college is going to expect you to fork out per year to send your kid there, but it isn’t quite that simple.  There can be a lot of variance from college to college on what you will be expected to pay.  Colleges will award need-based aid based on their own mysterious process that takes into account the results of the FAFSA and may also dig deeper into your financial life.  Some colleges have supplemental forms asking things like your monthly rent or mortgage payment, how much you had in itemized deductions on your last tax return, and more.  Some colleges require the CSS Profile.  This is a similarly invasive look at your finances, sponsored by the College Board organization, that will cost you $25 to send to the first college and $16 for each additional college.  The advantage to using CSS though is that you can fill it out once and send it to different schools, similar to the FAFSA, rather than having to fill out a different form for every school.

The biggest myth regarding need-based aid is that wealthy families are not eligible.  This is simply not the case.  I would encourage everyone to fill out the FAFSA, no matter what their financial situation is.  Here are some of the things that need-based aid may be based on that make it available for wealthy families:

1. Size of the college endowment
2. Sticker price of the college
3. Comparison of your family’s finances with all other admitted student family finances – it’s kind of like grading on a curve – your result depends on how good or bad everyone else looks
4. Your child’s assets – the student’s assets are used more heavily in the calculation than the parent’s assets
5. Number of children in college at the same time – the more you have in school, the less you are expected to pay for each
6. Your net worth – your salary may look great, but if you carry a lot of debt, you may receive more aid
7. Number of dependents you have

In my next post, I will talk about the experience of filling out the FAFSA and what to be prepared for.