DEFINITION of Means Test
A means test is a method for determining whether someone qualifies for financial assistance to obtain a service or good. It looks at the means, or monetary resources, a person has available to them to pay for a particular service or good, then determines that person's access to financial assistance based on their ability to pay for it. In essence, if you have the means or ability to pay for something on your own, you won't be given free assistance in paying for it.
BREAKING DOWN Means Test
Means tests are commonly used to determine eligibility for various types of assistance or relief. Educational institutions or scholarship foundations may offer means based scholarships or grants, which are given to students who are qualified to attend an educational institution but wouldn't otherwise be able to afford tuition. Federal financial aid for higher education is also subject to means testing, as households who have accumulated enough assets to fund a college education or who make enough money to have funded an education if they had saved often don't qualify for financial aid.
A common means test is the one used to determine eligibility for Chapter 7 bankruptcy. Means testing is also used in distributing Medicare benefits and has been suggested as a solution to the Social Security problem.Since debts do not have to be repaid under Chapter 7 bankruptcy, it is supposed to be limited to bankruptcy filers experiencing the greatest hardship. People who do not pass the Chapter 7 means test are limited to Chapter 13 bankruptcy, which establishes a repayment plan for debts.