Merit aid is the opposite of need-based aid. Merit aid refers to scholarships, grants and other "free" money awarded by a college or university to a student which are not based on the financial situation of the student. Merit aid effectively lowers the cost of the college. Each institution sets its own standards for merit aid, but the most notable awards are given for strong academic profiles, athletic participation, community participation, etc. In many cases, merit aid is used by a school to "award" a student as a means to offset a high sticker price and make the net price more affordable.

If a school is "need-based" it means that they do not award merit aid. These schools are typically expensive private colleges and universities.

Non-need based loans are not and should not be called merit aid. These are loans that do not require a particular financial standing to qualify such as a PLUS loan or Direct Unsubsidized Federal student loan.