There are lots of ways you can take care of the costs of college. You can pay for it all out of pocket, you might earn a scholarship because of your violin-playing talents or your high ACT score. Or you might get need-based financial aid.

What is need-based financial aid, exactly? It’s exactly like it sounds — it’s based on your family’s financial situation. Or, in very rare cases, it’s based on your financial situation if you’re an independent student. Your grades, test scores or extracurricular achievements don’t factor in. 

How Do You Get Need-Based Financial Aid?

You’ll need to file the Free Application for Federal Student Aid (FAFSA) if you want financial aid. Every single school you apply to will use your FAFSA results to determine your eligibility for federal financial aid. Certain schools you apply to may ask you to fill out the CSS Profile. Check out the list of schools. You can use the CSS Profile to apply for aid and scholarship programs from each school, not the federal government.

How is Need-Based Financial Aid Calculated?

Let’s break it up into two parts — here’s how to calculate your federal student aid and CSS Profile.

Federal Student Aid

Once you file the FAFSA form, colleges will use your Expected Family Contribution (EFC) to determine how much federal aid you’ll receive. A formula established by the government calculates your individual EFC. The EFC takes into consideration your family’s:

• Taxed and untaxed income
• Assets
• Benefits (including unemployment and Social Security) 
• Family size 
• Number of family members attending college

The formula looks like this:

Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Need

You won’t be able to get more need-based aid than the amount you actually need. In other words, let’s say your COA is $20,000 and your EFC is $15,000. Your financial need is $5,000 and you aren’t going to be eligible for more than $5,000 in need-based aid.

Here are the federal student aid programs: 

Federal Pell Grant

You could get a Federal Pell Grant if you’re an undergraduate student who has extreme financial need. Amounts can change yearly. The maximum Federal Pell Grant award is $6,195 from July 1, 2019 to June 30, 2020.

Federal Supplemental Educational Opportunity Grant (FSEOG)

An FSEOG also requires you to have a considerable amount of financial need. You can receive between $100 and $4,000 a year. This amount depends on a few factors: your financial need, the date you apply, how much other aid you get and the availability of funds at your school.

Direct Subsidized Loan

Direct Subsidized Loans are for undergraduate and graduate students. Postsecondary schools decide how much money they can offer you, but there are caps on the amounts available. These limits depend on your year in school.

Federal Work-Study

Federal work-study offers part-time employment for undergraduate, graduate and professional students. Each school determines the amount of work-study you get. Learn more from each school’s financial aid office.

CSS Profile

Some colleges require you to file the CSS Profile. Invest the money and send it to each school to see what kind of institutional aid you qualify for.

First, register with the College Board. You’ll also want to have the following financial documents handy (both yours and your parents’):

• Most recent tax return
• W-2 forms and any other records of income from the current year
• Current bank statements
• Records of assets

Is Need-Based Financial Aid Different than Merit-Based Aid?

Soooo, what’s the difference between need-based financial aid and merit-based aid? Financial need isn’t a consideration for merit-based scholarships.

They’re also need-blind. This means that a your financial profile is not a factor. Schools use another combo of merit-based factors. They might factor in your:

• Grade-point average
• SAT or ACT scores
• Class rank
• Academic performance
• Teacher recommendations
• Community service
• Academic major
• Gender, race or ethnic background
• Extracurricular activities

The government issues need-based financial aid. Colleges or private sponsors award merit-based aid.

Do you Have to Pay Need-Based Aid Back?

You’ll pay back financial aid if it’s a loan, but you don’t have to pay back grants, scholarships or work-study money.

You don’t have to begin repaying most federal student loans until after you leave college or drop below half-time enrollment.

A repayment schedule will explain when your first payment is due, how many payments you’ll make, the frequency of payments and your payment amounts.

You might get a grace period, which is a set period of time after you graduate, leave school or go below half-time enrollment. You don’t have to start repaying your loan until after the grace period is over. The grace period gives you time to select your repayment plan. Not all federal student loans have a grace period. Interest will build during the grace period in all cases.

How to Get the Most Need-Based Financial Aid Possible

Filing the FAFSA is the best way to get the most need-based aid possible. Be sure you know how much need-based financial aid you’re taking out and make a plan to pay it back when you’re through school.

Think of it this way: An average of 66 percent of graduates from the class of 2017 took out loans to pay for college, according to U.S. News data. Students borrowed about $30,000 on average.

You’ll use your income from 2018 for the 2020-2021 FAFSA. Parents and guardians, here are a few ways you can decrease your finances:

• Be intentional: Make less during the preceding years you know you’ll be filing the FAFSA
• Don’t realize capital gains or take retirement distributions
• Defer work bonuses
• Decrease reportable assets
• The more kids you have in college, the better

Get Need-Based Financial Aid

We’ve saved the best tip for last: Make sure you file your FAFSA as soon as possible, because many schools award aid on a first-come, first-served basis. There’s a finite amount of campus-based money. (You could file the FAFSA as of October 1.)