Financial Aid Application Process

Application Process for Needs-based Aid
To qualify for need based loans a student must depict a significant amount of financial need, which is determined by the federal government based on applications like the FAFSA and the loan applications themselves. In order to qualify for need based financial aid, students are typically required to submit financial aid applications, including the FAFSA and CSS Profile.

Need-based aid
Need-based financial aid is awarded on the basis of the financial need of the student. The Free Application for Federal Student Aid application (FAFSA) is generally used for determining federal, state, and institutional need-based aid eligibility. At private institutions, a supplemental application may be necessary for institutional need-based aid.

A recent trend shows that what is purely need-based aid is not entirely clear. According to the National Postsecondary Aid Survey (NPSAS), SAT scores affect the size of institutional need-based financial aid. If a student has a high SAT score and a low family income, they will receive larger institutional need-based grants than a student with a low family income that has low SAT scores. In 1996, public higher education institutions gave students with high SAT scores and a low family income $1,255 in need-based grants. However, only $565 in need-based grants were given to students with low SAT scores who had low family incomes. The lower a student's SAT score, the smaller the amount of need-based grants a student received no matter what their family income level was. The same trend holds true for higher education private institutions. In 1996, private institutions gave students with high SAT scores and a low family income $7,123 versus $2,382 for students with low SAT scores and a low family income. Thus, "institutional need-based awards are less sensitive to need and more sensitive to 'academic merit' than the principles of needs analysis would lead us to expect." It has been found that increasing an SAT score in the range of 100-200 points can result in hundreds of dollars more in institutional grants and on average substantially more if one is attending a private institution.

While providing financial information to the government is a reasonable expectation to calculate a student's financial need, it does not necessarily follow that colleges should have access to this information. Providing that information to schools may be problematic because schools learn about students' other sources of funding and may adjust their financial aid packages accordingly. There is an asymmetric information problem since schools have full knowledge of their customers' ability to pay while students and their families have little information about costs that colleges face to provide their services. That is, when planning for the next academic year, a school will know its current and projected costs as well as each student's ability to pay after receiving state and federal grants. According to the Center for College Affordability and Productivity (CCAP), "If the federal or state authorities increase financial support per student, the institution has the opportunity to capture part or all of that increased ability to pay by reducing institutional grants and/or raising their charges for tuition, fees, room, or board." Importantly, it also notes that "the exception to this general pattern is modest aid targeted at only low-income students, like the Pell grant." The center uses data about net proceeds (tuition plus room, board and other fees) as a percentage of median income to show that financial aid practices have not been effective in decreasing prices in an effort to increase access. Net proceeds at public four-year institutions rose from 15% to 20% of median income from 1987 to 2008. In that same time, productivity has declined in the form of lighter teaching loads for professors and increased expenditures on administrative staff

Non-Need Based Financial Aid
Non-need based loans are available for students and families who cannot afford to pay the entire cost of college. These loans are directed toward those individuals and families who did not qualify for need based loans due to the amount of their personal assets. There is usually a higher interest rate associated with non need based loans. Because these loans are not need based they government will not pay it for the student while they are enrolled in school - indicating that they are unsubsidized loans, and may require a repayment of the principal loan amount. The Unsubsidized Stafford Loan and Grad PLUS loan are non-need based loans available for both undergraduate and graduate students who do not qualify for need-based financial aid.

There are also non-need based grants and scholarships that consider merit rather than financial need. These awards are granted by the college or university as well as outside organizations. Merit-based scholarships are typically awarded for outstanding academic achievements and maximum SAT or ACT scores. However, some scholarships may be awarded due to special talents like athletic scholarships, leadership potential, and other personal characteristics. In order to be considered for such awards some institutions require an additional application process while others automatically consider all admitted students for their merit-based scholarships.

Non-need-based aid versus need-based aid
With the yearly rising cost of tuition, room and board, and fees among schools across the nation, low-income students are finding it harder to pay for their education. In an attempt to help students meet the high, costly demands of college, schools have increased merit-based grants, for students with outstanding academic position, involvement in organizations, or high athletic talent. The issue is that these reasons for awarding scholarships take away from low-income students who often do not meet these merit standards. In other words, funds for merit-based scholarships are taking away from the already small amount of federal aid available to low-income students who simply cannot pay for college without some kind of financial aid.

In recent years, government has responded to the financial crisis students are facing and therefore passed legislation that boosted the value of grants for low-income students and trimmed subsidies for private education lenders. Schools have also taken action for the sake of students. Harvard University, a well-known costly but wealthy institution that had previously cut tuition for students whose families earned less than $60,000 a year, proceeded to cut costs by nearly fifty percent for those students whose families earned between $120,000 and $180,000 a year. Institutions will consider students' financial needs as well as their academic merit standing when applying for financial aid. Merit-based aid and need-based aid have been linked together for many financial aid scholarships. This relationship is beneficial as it underlies that one form of financial aid, particularly merit-based, is not completely taking over need-based aid. Statistics do show results of studies performed from 1992-2000 that the increase in financial aid awarded was based entirely on merit. However, when viewing numbers of both merit-based and need-based aid closely, the differences are not significant.

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