Scholarships and grants are free money. Does it matter which kind of free money you get, as long as you get some? As a matter of fact, it does. Just to refresh: colleges offer two primary types of financial aid, need-based and merit-based. Need-based aid is allocated on the basis of the FAFSA or CSS Profile and reduces or even eliminates the gap between the college’s Cost of Attendance and the student’s Expected Family Contribution. Merit aid is awarded by colleges to attract and enroll students who are desirable to the college, whether due to grades, athletic ability, or other talents or attributes. Some colleges offer both types of aid; others offer one or the other.

Which type of aid is in your award matters because that determines whether and how the award renews each year. Need-based aid– the most generous of which is usually offered by colleges themselves rather than the Department of Education or state governments– is allocated based on the student’s FAFSA or CSS Profile and the college’s aid policies. That means that every year, the student reapplies and any changes in their or their family’s financial situation or family size can change the award. Merit aid typically has minimum GPA and course credit requirements for renewal.

So, how do you know what you got? The names are usually helpful. Need-based gift aid– money that the college or another entity is giving you with no expectation of repayment, on the basis of your financial need– is usually a grant. Grants like the Pell grant or FSEOG grant come from the federal Department of Education. Many states offer grants as well, such as California’s Cal Grant. Colleges themselves are the largest funders of need-based aid on a per capita basis: whereas a Pell Grant maxes out at $6,495, institutional financial aid can cover the entire cost of attendance, including room and board.

Need-based aid can also include subsidized loans, where no interest accrues on the loan until after graduation, and work-study. These are far less valuable insofar as they are the student’s own money or time, though an interest-free loan will save a few hundred dollars.

Merit awards, on the other hand, are usually scholarships. This is not always the case, though, so it’s worth confirming with the college if you are unsure about what you received.

Many students receive both types of aid. Here’s an example of a package one student received:

In this case, the Dean’s Scholarship is merit-based. The Emmanuel Grant, subsidized loan and work study are awarded on the basis of need.

Whatever type of award you are offered, you need to know how to continue receiving it for all four years of college. In the case of need-based aid, the annual renewal process is completing the FAFSA and CSS Profile, if applicable. Students receiving need-based aid should consider the following:

  • Is your family income consistent from year-to-year? If not, your aid package will not be consistent either.
  • Do you have older siblings who are currently in college? If so, your current aid package may be reduced once those siblings are no longer in college, since most colleges consider how many college students are in the household.
  • If you are eligible for a Pell Grant, what other components of your aid package are driven by the Pell Grant? Many colleges and some states provide supplemental aid to students who are eligible for the Pell Grant, so losing the Pell Grant can be costly. This is a common situation for students with siblings in college where the student’s EFC increases beyond the threshold for Pell eligibility once the older sibling(s) graduates.
  • Students who will continue to have siblings in college should ask whether their college of choice will continue using the number of college students in the family in calculating aid packages. With the coming changes to the FAFSA eliminating this question, some colleges are also eliminating it but many will continue considering it.

Merit awards are usually renewable on the basis of continued merit– generally a minimum GPA and courseload. Some awards may be specific to a major, meaning that a student could lose the award if they change major. Athletic scholarships may or may not be continued if the student leaves the sport, even if due to injury.

As you map out your four-year plan, make sure to understand how your aid award gets renewed each year. Most financial aid offices are happy to help prospective students understand their award and how it might be adjusted in future years. Families can also do the college’s net price calculator under both the current scenario (income/assets/number of college students) and the future scenario to get an estimate.

Here’s some other big news: Last year I wrote a book! How to Pay for College will be available in stores in the summer of 2022. Over the course of going through material I had written for this site, I realized that I could also make this online content much easier to use. The end result of that (after a ton of work from my husband) is a new website, Howtopayforcollege.com. I’m moving this blog over there, too, which you may have noticed if you clicked on any of the links in this post. Please head over to the new site and subscribe over there so you won’t miss a post!