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Financial aid is always on the minds of parents and students, especially when they begin to research college costs and their financial aid statistics. The terms can be a bit confusing and today I want to discuss merit aid and answer a few questions about what it is, how do you find it, and how do you apply for it.

What is merit aid?

“Merit Aid” is the general term for grants, scholarships and discounts that a college awards in the financial aid package without considering financial need. Merit aid is based on several factors: academics, athletics, special talents such as music, where the student lives or other demographic characteristics. Merit aid is different from need-based aid which is awarded based on the student’s economic situation.

How do you find merit aid?

There is more than $13 billion of merit aid available to undergraduate students. Most of that, about $11 billion, comes directly from colleges. The other $2 billion is provided by state governments. MeritAid.com lists more than 23,000 individual merit aid scholarship programs offered by more than 1,800 colleges across the country. Meritaid.com is the largest single source of information about merit-based scholarships.

You can also search on the college’s website. Colleges with merit aid may offer anywhere from a few dozen opportunities to hundreds of individual programs. Some merit awards are well known and heavily advertised while others are harder to find.

How do you apply for merit aid?

In many cases, applying to a school is enough to be considered for the many merit aid opportunities available, assuming you get in, of course. However, some colleges or scholarship programs may have special application requirements, so always check with the college if you’re not sure.

When will I know if I receive merit aid?

Once the college offers you admission, they will follow the offer with a financial aid package. The merit aid they award will be listed in the package. This offer typically comes after the acceptance letter arrives.

Almost everyone qualifies for some form of financial aid, but don’t assume you won’t qualify for merit aid. Check out MeritAid.com for a list of 5 myths about merit aid. Visit their website for the best database on merit aid scholarships.

The outlook isn’t good. Bain, which markets its consulting services to universities, and Sterling Partners, which invests in education companies, examined the balance sheets from 2006 to 2010 of schools in their report. They found many schools operating on the assumption that the more they build, spend and diversify the more they will prosper. They have become overleveraged, with long-term debt increasing at an average rate of about 12% a year and average annual interest expense growing at almost twice the rate of instruction-related expense.

Schools have been trying to plug the gap by jacking up tuition at rates that aren’t sustainable. The result is a fiscal hurdle that dozens of second- and third-tier public and private schools won’t be able to clear. Hundreds of schools—including some of the most prestigious institutions in the country—have tightened their belts.

From the New York Times Education section today: