How Scholarships Work: The Truth About Need and Merit-Based Scholarships

Introduction to How Scholarships Work

Paying for college shouldn’t feel like gambling with your future — but for many students, it does. As tuition keeps climbing, scholarships have become more than just a nice bonus — they’re a lifeline.

But here’s the problem: most students don’t fully understand how scholarships work. They hear buzzwords like “need-based” and “merit-based” thrown around during college talks or financial aid nights, but few know what actually qualifies someone for these awards — or how to apply strategically.

Are scholarships only for straight-A students and star athletes? What if your family makes just a little too much to qualify for need-based aid? Can you get both? And are you missing out on scholarship money just because you didn’t know where to look?

This guide cuts through the confusion. We’ll break down the key differences between need-based and merit-based scholarships, bust the most damaging myths, and help you figure out exactly where you stand — and what steps to take next. Whether you’re the first in your family to apply to college or aiming to further to masters or PhD level, this is the real guide you need to avoid debt and secure the funding you deserve.

Let’s unpack how scholarships really work — and how you can make them work for you.

What Are Scholarships, Really?

Scholarships are financial awards given to students to help cover the cost of education. Unlike student loans, they don’t have to be repaid. They can come from schools, nonprofits, private companies, or government programs.

Key points to note:

• Purpose: Scholarships help students afford tuition, books, housing, and other college expenses.
• Eligibility: Being awarded a scholarship is based on a range of factors like financial need, academic performance, athletic ability, community service, or specific talents.
• Types: There are two main categories of scholarships: need-based and merit-based — and they operate very differently.

Need-Based Scholarships: Who Qualifies and How

Need-based scholarships are awarded based on a student’s financial situation, not grades or achievements. The goal is to level the playing field for students from low- and middle-income families.

Who qualifies ?:

• Students from households with limited income and assets.
• Often determined by data from the FAFSA (Free Application for Federal Student Aid) or CSS Profile. (These data is mostly used by universities in USA).

How it works:

• Your Expected Family Contribution (EFC) or Student Aid Index (SAI) is calculated based on income, savings, household size, etc.
• The lower your EFC/SAI, the higher your financial need — and the more aid you may qualify for.
• These scholarships are often bundled into a school’s financial aid package.

For Example:

• A university may offer a need-based scholarship that covers full tuition for students whose family income is under $60,000 per annum.

Merit-Based Scholarships: What Counts as “Merit”?

Merit-based scholarships reward achievements — not financial need. These are given to students who stand out in academics, athletics, leadership, arts, or other skills.

What counts as “merit”:

• GPA and test scores (e.g., SAT, ACT)
• Extracurricular activities (sports, music, clubs)
• Leadership roles (student government, community service)
• Portfolios or audition tapes (for arts scholarships)
• Special talents or achievements (chess champion, math olympiad finalist, etc.)

How it works:

• You typically apply directly through a school or external organization.
• Some are automatic based on your admissions application; others require a separate essay, interview, or project.
• These can be highly competitive but the scholarship don’t factor in how much money you or your family has.

For Example:

• A school might offer a $10,000 annual scholarship to students with a 3.9+ GPA and 1450+ SAT score.

Pros and Cons of Need-Based vs. Merit-Based Aid

Need-Based Scholarships

Pros:

• Equity-focused: Helps students who couldn’t afford college otherwise.
• Often renewable: Many are awarded for all four years if financial need continues.
• No extra effort needed: Usually determined automatically through FAFSA/CSS Profile.

Cons:

• Income cutoffs: If your family makes just above the threshold, you might get little or nothing.
• Limited funding: Aid can run out or be less than your actual need.
• Not performance-based: Academic achievers may feel penalized if they don’t qualify due to income.

Merit-Based Scholarships

Pros:

• Rewards talent and effort: Encourages strong academics, leadership, and achievement.
• Available to all income levels: Even high-income families can receive merit aid.
• Prestige: Some merit awards carry recognition that can boost resumes.

Cons:

• Highly competitive: A small percentage of students qualify.
• Can be one-time or non-renewable: Some only last for the first year.
• Pressure to maintain performance: Some require maintaining a certain GPA to keep the award.

Can You Qualify for Both?

Yes — and many students do.

These two forms of aid aren’t mutually exclusive. In fact, many colleges offer blended aid packages combining both.

Examples:

• A student might receive a need-based grant from a university and a merit-based scholarship from a local nonprofit.
• Some elite schools give need-based aid only, while others also offer merit aid to attract top talent.

What matters:

• Filing the FAFSA (and possibly the CSS Profile) is essential to unlock both need-based aid and some merit-based awards.
• Check each college’s financial aid policies — they vary widely.

Tip: Even if you think you won’t qualify for need-based aid, always apply. You might be surprised.

Common Misconceptions That Hurt Your Chances

1. “I won’t qualify for any aid — my parents make too much.”
   → Some merit scholarships aren’t income-based. And many families overestimate how much “too much” really is.
2. “If I don’t have perfect grades, I can’t get scholarships.”
   → Merit doesn’t just mean academic. Community work, sports, or leadership can all count.
3. “I only need to fill out FAFSA if I want loans.”
   → FAFSA unlocks grants, scholarships, and work-study — not just loans. Skipping it could cost you thousands.
4. “Scholarships only come from colleges.”
   → There are thousands of outside scholarships from businesses, nonprofits, religious groups, and more.
5. “Once I get a scholarship, I’m set.”
   → Many scholarships are renewable, but only if you meet conditions (like GPA or financial need). Always read the fine print.

How to Find Scholarships That Fit You

The best scholarships for you depend on who you are, what you need, and what you’ve done. Here’s how to find the right matches:

1. Start with Your School

• Check your high school guidance office and college’s financial aid site.
• Many colleges automatically consider you for institutional scholarships when you apply for admission.

2. Use Reputable Scholarship Search Tools

• Fastweb
• Scholarships.com
• WebbyServices.com

Tip: Set filters for your interests, background, GPA, and financial need to find a more targeted list.

3. Think Local

• Look for scholarships offered by:
  • Local businesses
  • Credit unions or banks
  • Rotary Clubs, Chambers of Commerce
  • Religious or cultural organizations

Fewer applicants = higher chance of winning.

4. Focus on Fit Over Hype

• A $500 scholarship with a strong fit is better than chasing a national $50,000 one you don’t qualify for.
• Apply for multiple small ones — they add up.

5. Don’t Skip the Essay Scholarships

• Many students avoid them. That’s your advantage.
• If you’re willing to write a strong essay, you’ll face less competition.

Learn How To: Win Scholarships with a Strong Essay That Sets You Apart

Final Take: Which Scholarship Type Makes Sense for Me?

Here’s the truth: It’s not an either/or — it’s a strategy.

Ask yourself:

• Do you have financial need? → Apply for need-based aid. File the FAFSA early.
• Do you have strong grades, skills, or accomplishments? → Apply for merit-based awards. Highlight your strengths.
• Do you have both? → Go for both. There’s no penalty.

Conclusion

Maximize your chances by applying for every form of aid you’re eligible for. Cast a wide net — and stay organized. There’s money out there. Your job is to go get it.