Table of Contents
Paying for college can be expensive, but there are several types of financial aid available to students. Some aid awards are determined based on your family’s financial situation. Known as need-based financial aid, amounts are awarded based on several factors, and in some cases, it may not have to be repaid.
If you’re unsure whether you’ll qualify for need-based aid, how much you’ll receive, or whether you need to pay it back, here’s what you should know.
Key Points
• Need-based financial aid helps students cover college expenses based on their financial circumstances.
• Completing the Free Application for Federal Student Aid (FAFSA®) is essential for assessing eligibility for federal, state, and institutional aid.
• Financial aid options include grants, scholarships, work-study programs, and federal Direct Subsidized Loans.
• Pell Grants are for undergraduate students with significant financial need.
• Federal work-study programs offer part-time employment, allowing students to earn money for educational expenses.
Defining Need-Based Financial Aid
To put it simply, need-based financial aid is money to help students pay for the costs of attending college that’s awarded based on their financial situation.
Depending on your circumstances, you may qualify for federal or state aid or aid from the institution you attend. Typically, need-based aid is determined based on the information provided on the Free Application for Federal Student Aid, or FAFSA®.
Most college students take advantage of what’s offered in their federal financial aid package, which may include the following types of need-based federal financial aid.
Direct Subsidized Student Loans
The federal government will subsidize (or cover) any interest that accrues on Direct Subsidized Loans for undergraduate students while they are enrolled in school at least half-time and during the six-month grace period after graduation.
After the grace period, interest will start to accrue. This is unlike Direct Unsubsidized Loans, which begin accruing interest as soon as they are disbursed.
There is a limit to how much a student can borrow in federal loans and the amount they borrow cannot exceed their financial need. The maximum amount first-year undergraduate students can borrow cannot exceed $5,500 (or $9,500 for independent students), $3,500 of which is in subsidized loans. The maximum amount you can borrow increases each year you’re enrolled.
Pell Grants
Pell Grants are for undergraduate students who have demonstrated exceptional financial need. They depend on factors such as your expected family contribution, your enrollment status, and how much your schooling will cost.
The maximum amount may vary — it’s $7,395 for the 2025-26 academic year. It may also be possible for students to receive up to 150% of their scheduled award, though qualification requirements will vary.
To be eligible for the Pell Grant, students will need to fill out the FAFSA each year that they are enrolled in undergraduate studies.
Work-Study Programs
The federal work-study program offers part-time jobs for undergraduate or graduate students based on their financial needs. The goal is to provide the opportunity for students to earn money towards education-related expenses and one that’s related to their field of study. There may be jobs both on- and off-campus and the program is administered by participating schools.
The type of job you get and how much you earn will be influenced by factors like when you apply and how much funding your school has. At a minimum, program participants will be paid at least the current federal minimum wage.
If you are awarded work-study as a part of your federal aid package, you can’t earn an amount that’s more than what was awarded.
💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing may make sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections. Note that refinancing with a longer term can increase your total interest charges.
What’s the Difference Between Need-Based Financial Aid and Merit-Based Aid?
Whereas need-based financial aid is based on the student and their family’s financial circumstances, merit-based aid doesn’t consider finances. Instead, this type of financial aid looks at things like standardized test scores or grade point average (GPA). In some cases, financial aid is based on other merits such as your class rank.
Some scholarships are also based on your class rank. Usually, scholarships are awarded based on merit, though there are plenty based on financial need. Before applying for any financial aid, it’s important to look at the eligibility requirements so you know whether you’ll qualify.
Recommended: How to Get Merit Aid for College
Do I Need to Pay Back Need-Based Financial Aid?
Even though the point of aid based on financial need is to help you cover college expenses you otherwise wouldn’t be able to afford, you may have to pay some of it back. For instance, the Pell Grant or other types of grants don’t need to be repaid. Scholarships are another type of aid that recipients are not required to repay. If you participate in the work-study program, the money you’ve earned is also yours.
However, Direct Subsidized Loans will need to be repaid. You won’t, however, need to pay any interest while you’re enrolled at least half-time since the government will cover that. Direct Unsubsidized loans (which aren’t awarded based on need) will also need to be repaid and borrowers will be responsible for the full amount of accrued interest.
In some cases, you may not need to pay back the entire amount if you qualify for student loan forgiveness. There are several types of forgiveness with varying eligibility requirements that depend on factors such as your career path.
For instance, the Public Service Loan Forgiveness, or PSLF program, will forgive the outstanding balance on a Direct Loan after you’ve made 120 monthly qualifying payments. These payments need to be paid while you’re working full-time for a qualifying employer and under a qualifying repayment plan.
To see whether you qualify for a forgiveness program, it may be helpful to speak with your loan servicer or check ways to qualify for forgiveness at the office of Federal Student Aid.
Should I Apply for Need-Based Financial Aid?
In a nutshell, yes. Filling out the FAFSA will allow you to determine how much federal aid you qualify for. Some schools will also use the FAFSA to determine additional aid awards.
The FAFSA will require information about your financial situation and your family’s financial situation to help determine how much aid you’ll receive. There is also the CSS Profile, which some colleges may use to determine financial aid awards. To fill out the CSS Profile there is a small fee, though some students may qualify for a fee waiver.
That being said, you may not receive enough financial aid even if you qualify for it. For instance, Pell Grants are typically given on a first-come, first-served basis. It may help to submit the FAFSA as soon as possible. That way, you may be able to find out sooner what you may qualify for.
You can submit your FAFSA as soon as October 1 for the following school year. That’s one of the important FAFSA deadlines to know.
The Takeaway
Even if you’re not sure if you qualify for need-based aid from the federal government, you may be able to qualify for aid at the state, local or college level. There is also merit-based aid in the form of scholarships and some grants.
Many organizations also award grants and scholarships for specific demographics and those pursuing certain fields. It’s far better to accept free money through grants and scholarships before taking out any loans.
If you do end up borrowing money to pay for college, you may want to consider refinancing your student loans. Doing so can help qualifying borrowers reduce their interest rate, which could lower the amount paid over the life of the loan.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What is the meaning of need-based aid?
Need-based financial aid is money to help students pay for the cost of attending college. The amount awarded is based on a student’s financial situation. To determine how much need-based financial aid they might qualify for, a student should complete the Free Application for Federal Student Aid (FAFSA).
What salary is too high for FAFSA?
Technically, there is no specific salary that is too high for the FAFSA. Factors such as cost of attendance at a college are also considered. No matter what your family earns, you should fill out the form to determine your eligibility for federal loans and other aid.
How do I know if I qualify for need-based financial aid?
Filling out the Free Application for Federal Student Aid (FAFSA) will determine how much financial aid you may qualify for. The information you provide on the form is used by the financial aid department at your college to calculate your Student Aid Index (SAI). To determine your need, your SAI is subtracted from the cost of attendance (COA) at your school. Additional factors may also play a role, such as your year in school and your enrollment status.
Photo credit: iStock/MicroStockHub
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOSLR-Q425-007