Types of financial aid

Advisors can help students and parents decide whether to choose private universities or public ones, including state-subsidized schools as well as community colleges, and to help students and parents understand different types of financial aid.

• Need-based aid is offered according to the financial need of a student. Generally colleges at the "top of the pecking order" dispense aid solely in terms of need using "fairly predictable formulas". According to one source, about 30 elite universities have "coffers deep enough to meet all student need" and consequently only offer need-based aid.
• Merit-based aid is scholarships and grants awarded to top academic performers or others with special talents. One report suggested that academic scholarships tended to be few, and were usually awarded by the admissions office and are "highly competitive". Another report suggested that most colleges use merit scholarships, based on high scores or grades or other accomplishments, to lure students away from a competing college.

One view is that most colleges award aid using a mix of both. Further, student loans can lessen the immediate difficulty of large tuition bills but can saddle a student with debt after graduation; in contrast, grants and scholarships do not have to be paid back.

Schools trying to climb the prestige ladder use merit-based scholarships to attract top students to boost their rankings in the US News guidebook. As a school's "stock" rises, high performing students start attending in greater numbers, and consequently the college can "ratchet back on the merit aid to wealthy students" and shift funds towards "need-based financial aid". Elite schools such as the Ivies don't give merit scholarships, according to two reports. Another tool is to use the College Board's expected family contribution calculator that can give families an idea of how much college will cost, but not for any particular college.

Families think their sons and daughters are awarded a merit scholarship because of the fact that they are wonderfully smart and talented ... The primary reason for awarding a non-need-based merit scholarship is to change a student's enrollment decision from another institution to our institution. That's why colleges do it.