Need-based Financial Aid: What It Is & How To Qualify

Need-based financial aid is money that’s awarded to you based on your family’s income and finances. If you need additional funds to pay for school and can demonstrate financial need, you may qualify for different types of need-based federal aid, like work-study and Direct Subsidized Loans. To check your eligibility, you must complete the Free Application for Federal Student Aid (FAFSA).

Types of need-based financial aid

Completing the FAFSA determines only if you’re eligible for federal aid — it’s not a guarantee that all of your costs will be covered. Some grants and scholarships have maximum award amounts, for instance, and student loans may limit how much you can borrow. Even if you don’t think you’ll be granted financial aid, it’s important to always fill out the FAFSA.

“Many families may assume their income is too high for them to qualify for any federal need-based aid,” says Erin Powers, a spokesperson for the National Association of Student Financial Aid Administrators (NASFAA). “But in actuality there is no income cutoff to qualify.”

Several types of need-based financial aid exists:

Pell Grants

Pell Grants are awarded to undergraduate students who have strong financial need. How much you get depends on your course load and cost of attendance. Not all students who get a Pell Grant will get the same amount, but you can get up to $7,395 for the 2024-25 award year.

Work-Study

Work-Study are part-time jobs available to students to earn money to pay for school. Jobs can be on or off campus, and you’ll earn at least the federal minimum wage. Your total work-study award depends on when you apply, your need and your school’s funding level. Unlike Pell Grants and loans, which go straight to your school, work-study usually pays you directly.

Direct Subsidized Loans

Direct Subsidized Loans are a type of federal student loan where the interest is paid for by the federal government while you’re enrolled in school at least half time and during its six-month grace period. Its counterpart is Direct Unsubsidized Loans, which is not need-based. Understand the difference between these two loans before accepting them.

Regardless of the cost of your education, you’re limited to $23,000 in Direct Subsidized Loans for your entire undergraduate studies, with annual limits from $3,500 to $5,500, depending on the year you’re in and your dependency status.

<editorial insight box: Loans accrue interest>Remember to fully understand the terms of loans before accepting them. It is important to keep in mind that interest may significantly increase the amount you owe.</editorial insight box>

How is need-based aid determined?

When you submit your FAFSA, you gain access to the FAFSA Submission Summary, which will include information about your Student Aid Index (SAI) and your estimated eligibility for federal aid.

The SAI is a number ranging from -1,500 to 999,999. Basically, the lower the number, the more need-based aid you can get. It is calculated by subtracting the minimum amount you would need for your normal expenses from your total financial resources, which could include that of your parents or spouse. It is important to keep in mind the SAI is just an index number, not a dollar amount.

Cost of attendance (COA), the amount needed to attend a particular school, is also a factor. This includes such things as tuition and fees, as well as cost of food, housing, books, transportation and even those related to a disability.

Financial aid staff figure out your financial need by subtracting your SAI from the COA. For instance, if your COA is $20,000, and your SAI is 8,500, then you are qualified for $11,500 of need-based aid.

Many types of need-based financial aid are given on a first-come, first-served basis, so it’s best to complete the FAFSA as soon as possible.

How to apply for need-based financial aid

To get started on your need-based financial aid, you’ll need to go to the Federal Student Aid website. From there, you can do the following:

1. Create your FSA ID.
2. Gather all necessary documents, including tax and financial documents.
3. Complete your FAFSA as soon as the enrollment period opens (Oct. 1 every year) to maximize your financial aid.
4. Review your FAFSA Submission Summary and make any corrections, if necessary. If your school needs verification of your information, it will be stated in the summary.

The aid offer you receive will include grants, scholarships, work-study and student loans. When it arrives, you can decide which ones to deny or accept. The aid you accept will get sent to your college or university. Remember to renew your FAFSA every year, or else you will not continue to receive aid.

You can also explore other types of need-based aid through grants at the federal, state, local and institutional level that aren’t directly tied to the FAFSA. Many organizations, nonprofits and companies offer grants and scholarships to students who need the money and can’t otherwise afford school.

Bottom line

If you haven’t already, prepare your documents to complete the FAFSA as soon as you’re eligible — the final FAFSA deadline for the 2025-26 academic year is June 30, 2026. The sooner you apply, the faster you’ll get your aid offer and your expected family contribution to see how much free money you’re getting through grants and scholarships, as well as how much you’re eligible to borrow through student loans.

Be sure to check out scholarships and grants regularly and keep a list of awards you’ve already applied for and won. The more free financial aid you earn, the less you’ll have to borrow and pay back after you’ve graduated.