Grants, Scholarships, and Loans

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What’s the Difference Between Grants, Scholarships, and Loans?

Scholarships, grants, and loans are some of the many options available to help you pay for your education. But figuring out how to access and combine them can be overwhelming.

To take some stress out of the process we’ll answer questions like, “How do you qualify for a grant vs. a scholarship?” and “How do you apply for student loans vs. scholarships?” Plus, we’ll show you how to apply for scholarships, grants, and loans as well as the best way to put them all together so you can save the most money.

Let’s get started with some basic definitions of scholarships, grants, and loans.

What is a scholarship?

A scholarship is a money-based award specifically designated for education-related expenses.

Qualification for scholarships depends on the individual scholarship program and awards can be based on merit, talent, or academic performance. Scholarships are also available through a wide variety of sources, including schools, private businesses, foundations, and nonprofit organizations.

What is a grant?

Grants are gift aid awarded to students often based on financial need. They typically come from the state government, federal government, non-profit organizations, and schools.

What is a loan?

A loan is a money that you borrow with the expectation that you will pay it back, within a deadline laid out by your lender.

Students can borrow money through federal student loans, which are issued by the government, or private student loans, which are issued by non-government entities like banks and credit unions.

Primary Differences Between Scholarships, Grants, and Loans


When you take out a loan, the expectation is that you will pay the money back. Scholarships and grants, on the other hand, do not need to be paid back. The money you receive is yours to keep.

You’re probably thinking, “Great! How do I get the money I can keep?”

That depends – another major difference between scholarships, grants, and loans is how your eligibility for each is determined.


Eligibility for scholarships is based on the specific scholarship program. Some scholarships are merit-based and awarded to those who demonstrate academic ability or talent, while others are based on financial need or geared toward specific career goals.

How do grants differ from scholarships?

Grants are similar to scholarships in that they do not need to be repaid, but they differ in that they are typically based on financial need – not on merit or performance.

To obtain a grant, you’ll have to provide information about your financial circumstances to demonstrate that need.

How do loans differ from grants and scholarships?

Loan money tends to be more accessible than grant and scholarship money.

Since federal student loans are made and funded directly by the federal government, to obtain a federal student loan, you’ll need to complete the Free Application for Federal Student Aid – or FAFSA – and meet the eligibility and financial need requirements.

For a private student loan, you’ll need to prove your creditworthiness. Your creditworthiness is what reassures lenders that you can repay what you borrow. To assess this, lenders look at criteria like income and credit history.

Pros and Cons of Scholarships, Grants, and Loans

Pros and Cons of Scholarships

Pros One of the biggest advantages of scholarships is that you get to keep the money you receive; there is nothing to pay back. There are also no limits to how many scholarships a student can receive, so it’s possible to fund an entire college education exclusively through a combination of scholarships.

An additional bonus is that winning a scholarship feels pretty good! It’s an accomplishment to be selected – especially if you’ve shown talent or achievement.

Cons One disadvantage of scholarships is that any amount you’re awarded can affect your financial aid package. The more scholarship money you receive, the less you are perceived to need from other sources, like federal student loans.

Scholarships are also very competitive. Students may spend a lot of time filling out applications and writing scholarship essays. While we encourage all students to apply for scholarships, we also encourage you to prioritize and invest your time wisely.

Pros and Cons of Grants

Pros Grants do not need to be paid back for most students, and the application process is straightforward since eligibility is based on financial need alone.

Cons There are some exceptions to the “free money” aspect of grants. With federal grants, for example, a student might be required to pay back all or part of the money they receive if they receive outside grants or scholarships that reduce their overall need for aid. Students may also be required to pay back federal grant money if they drop classes.

Grants are also a limited resource and tend to be short-term, so they do eventually run out.

Pros and Cons of Loans

Pros While it’s never fun to owe money, it does help you establish a credit history. This will help when you apply for credit cards and other types of loans in the future (like a car loan or a mortgage).

Cons In addition to paying back the amount you borrow; you will need to pay interest on that amount. Interest is essentially the cost of borrowing money and is calculated as a percentage.

How to Apply for Scholarships, Grants, and Loans

How to apply for scholarships

Scholarships.com is one of many online resources and can search over 3.7 million college scholarships, as well as grants.

Because each scholarship is unique and has its own criteria, it’s important to follow directions carefully for each. For instance, some scholarships may require an essay along with an application. Be sure to also note the deadlines for scholarships and give yourself plenty of time, so that you don’t have to rush through the process.

How to apply for grants (FAFSA)

To apply for a federal grant, for a real example, you’ll need to fill out the Free Application for Federal Student Aid – or FAFSA. The process is free and simple, and all college students are encouraged to complete one to determine their eligibility for financial aid. After all, this is free money you can potentially receive for college expenses, and every little bit helps.

With federal grants, you’ll need to have your personal financial information ready for the application process.

How to apply for student loans (FAFSA)

Students are generally eligible to borrow up to a capped amount of federal aid each semester. While many students benefit from federal student loans, some students may find the amount of aid they are offered doesn’t always cover what they need. To bridge the gap, taking out a private student loan could be an option to cover costs.

There are two types of student loans: federal student loans and private student loans. If you’re trying to figure out how you’re going to pay for school, you’ve likely thought about both. Federal and private student loans are not the same and it’s important to know the difference.

Federal student loans are made and funded directly by the federal government. To apply, you need to complete the Free Application for Federal Student Aid (FAFSA).

Sometimes referred to as non-federal or alternative loans, private student loans are made and funded by private lenders, such as banks and online lenders.

But when it comes to paying for college – no matter if you’re an undergraduate student, a graduate student, or a parent
– there’s more to know about federal vs. private student loans. Let’s look at each one in more detail.

Federal Student Loans

There are a few types of federal loan programs and they are awarded based on set eligibility criteria, including financial need. The main federal student loans break down as follows:

Types of Federal Student Loans

  • Direct Subsidized Loans (subsidized Stafford loans) are available to undergraduate students with financial need and recipients are not responsible for paying the interest charges on the loan while in school.
  • Direct Unsubsidized Loans (unsubsidized Stafford loans) are available to undergraduate and graduate students who meet the eligibility requirements, but there is no requirement to demonstrate financial need.
  • Perkins Loans are available to undergraduate and graduate students with exceptional financial needs.
  • Direct PLUS Loans are available to eligible graduate students and parents.

Direct Subsidized and Direct Unsubsidized Loans (also known as Stafford Loans) are the most common type of federal student loans for undergrad and graduate students. Direct PLUS Loans (also known as Grad PLUS and Parent PLUS) have higher interest rates and disbursement fees than Stafford Loans.

Direct Subsidized (Stafford) Loans

To qualify for a Direct Subsidized Loan (also known as a Subsidized Stafford Loan), you must be an undergraduate student and demonstrate financial need. No credit history is required to qualify for this type of federal student loan.

With a Direct Subsidized Loan, you do not have to pay interest while you are still in school. The government assumes responsibility for the interest accrued in that time period.

Direct Unsubsidized (Stafford) Loans

Direct Unsubsidized Loans (also known as Unsubsidized Stafford Loans) are federal loans issued to both undergraduate and graduate students. Students are not required to demonstrate financial need to qualify for these types of student loans, and no credit history is required to qualify.

Interest will begin accruing at the time of your loan disbursement.

Perkins Loans

Loans made through the Federal Perkins Loan Program are issued to both undergraduate and graduate students and are reserved for those with exceptional financial needs. While Congress sets fixed interest rates for the life of federal student loan, Perkins Loans have a separate fixed rate, which is a bit lower.

As with Stafford Loans, no credit history is required to qualify for a Perkins Loan. However, not all colleges participate in this program, so be sure to check with your school’s financial aid office for more information.

Parent PLUS Loans

Parents of dependent undergraduate and graduate students can borrow money to pay for their child’s education. Fixed interest rates on Parent PLUS loans tend to be slightly higher than those for Stafford Loans, and the borrower must have good credit to qualify.

Grad PLUS Loans

The Grad PLUS Loan is a federal student loan available to graduate and professional students. Unlike Stafford and Perkins loans, which do not consider a graduate student’s credit history for qualification, Grad PLUS borrowers must have good credit.

How Private Student Loans Work

Many students turn to loans to help finance their education. While the education loan process might seem complicated and overwhelming at first, we will help you understand how to take out a private student loan and how they work, step by step – from research to repayment.

What To Do Before Taking Out Private Student Loans

Unlike federal student loans that are issued by the government, private student loans are issued by private lenders, such as banks and financial companies.

How Long It Takes to Get a Private Student Loan

How fast you can get a private student loan depends primarily on the lender. Most private student loan applications can be submitted online and take an average of fifteen minutes to complete. Approval times can vary, but most lenders will let you know if you’re approved within a matter of days. We’ve simplified applications so you can get an instant decision in as little as three minutes.

How to Get a Private Student Loan: Step by Step

First and Main Step: Research Your Student Loan Options

Before applying for a private student loan, it’s important to do your research on the private student loan landscape and learn about your options. This is particularly important when it comes to interest rates and repayment terms, which can affect the amount of money you’ll owe over time.

Tip: For help in understanding what you should look for, check out “10 Things to Know When Shopping for Student Loans.”

Some private student loan lenders offer tools early in the process to help you make your decision we provide a https://smartasset.com/student-loans/student-loan-calculator that allows you to see how different loan repayment options will affect your monthly bills and total cost to see what rates you can expect before applying.

Have some Tested Direct Links (TDL) to apply for Grants, Scholarships, and Loans. Apply your Goodwill at least.

Good luck!

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