What is the difference between need-based and merit-based financial aid, and which sources typically provide each?

• A. Need-based aid is determined by achievements and funded by colleges; merit-based aid is determined by financial need and funded by the government.
• B. Need-based aid is funded by private donors; merit-based aid is funded by the government.
• C. Need-based aid is determined by financial need and funded by federal/state governments and colleges; merit-based is awarded for achievements and funded by colleges or external donors.
• D. They are the same.

Answer: (C)

The main distinction is that need-based aid is awarded based on a student’s financial situation, while merit-based aid is awarded for demonstrated achievements. Need-based aid is funded by federal and state governments as well as colleges, and it’s determined using family financial information (like the FAFSA or CSS Profile) to gauge how much aid is needed. Merit-based aid, on the other hand, is granted for accomplishments such as high grades, strong test scores, special talents, or leadership, and is funded by colleges or external donors (foundations, corporations, private donors). Government programs do exist for need-based aid, like federal Pell Grants, whereas merit-based awards more commonly come from colleges or private sources. So, the correct understanding is that need-based aid is driven by need and funded by government and colleges, while merit-based aid is driven by achievement and funded by colleges or external donors.