In general terms, merit-based aid is any form of financial aid not based on demonstrated financial need. Merit-based aid, which can take the form of grants, scholarships, or loans on favorable terms, is generally granted by each school and/or its alumni associations and wealthy benefactors. You may qualify for it by meeting a certain academic requirment, such as grade point average, test scores, or career goal. Alternatively, you may qualify through an essay competition or the like. Your financial aid package may include both need- and merit-based aid.