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Differences Between Scholarships and Student Loans

If you’re looking to learn about the similarities and differences between a scholarship, a grant, and a student loan, you’ve come to the right place! While all are crucial in paying off the costs of college, they each have features which make them distinctive from one another.

Keep on reading to learn about what they are, what differentiates them, and the pros and cons of each one.

What is a scholarship?

Scholarships are money-based awards made specifically to help students pay off their college expenses. Individual scholarships differ greatly from one another, with their own unique eligibility criteria, awards, and qualifications. Quite common are academic, merit, or talent-based qualifications. However, with some research, you could probably find a scholarship for most (if not all) of your other interests as well!

The amount of money awarded varies greatly by scholarship as well; those offered by individuals or smaller companies typically award less, while those from larger companies or organizations can offer up to tens-of-thousands to individual students. Apply widely to make the most out of your applications – there’s no limit to how many scholarships you can accept (if the money you win exceeds your financial need, however, contact your school before accepting the award)!

What is a grant?

Grants, like scholarships, are also money-based awards. They are generally awarded by state governments, the federal government, non-profit organizations, or universities themselves. Like scholarships, they do not need to be repaid and have specific eligibility criteria – most often based on financial need. 

Pell Grants are a particularly well-known type of grant, offered only to undergraduate students demonstrating great financial need and without a degree. While the maximum you can earn through a Pell Grant for the 2021-2022 award year is $6,495, the amount you are awarded depends on a few factors: expected family contribution, cost of attendance, your status (full or part-time), and how long you plan on attending school.

What is a student loan?

Student loans are borrowed money, typically to pay for tuition or other college-related expenses. They are most often issued by the federal government (federal student loans), banks, or credit unions with the expectation that they will eventually be paid back. Those who are approved for loans may need to prove their ability to pay it off, which may require someone else to co-sign the loan.

Learn more: How to apply for student loans: Federal and private

Differences between each type of financial aid

While all serve to aid students in paying off their college expenses, some key differences (and similarities) exist between scholarships, grants, and student loans. These key differences lie in three main categories: repayment, eligibility criteria, and the application process.


Repayment refers to whether students will be required to pay back the money they’ve been given (or loaned). 

Scholarships are pretty simple in this realm – they are considered “gift aid” and should never need to be repaid as long as you continue to fulfill the obligations that come along with your scholarship. Grants are similar and should not require repayment as long as the student continues to fulfill their grant’s requirements (not withdraw from their program, not change their enrollment status, etc.).

Student loans – unlike scholarships and grants – are not considered “gifts” or “awards” and need to be fully repaid.

Related: Do I have to pay back FAFSA money?

Eligibility criteria

Eligibility criteria for scholarships vary greatly, with each scholarship requiring different things for applicants. Most are based on a combination of factors, which typically include financial need, academic achievement, extracurricular achievement, background, location, and academic interests such as major.

Grants also have specific eligibility criteria for those who apply, but these are most often based on financial need rather than talent or merit.

  • Student loans work a little differently. All citizens and eligible noncitizens are eligible for federal loans, though the type of loans they qualify for depend entirely on financial need as determined by the FAFSA. Academic achievement does not factor into these loans at all. Federal loans do not investigate the applicant’s credit history. Private loans, on the other hand, do not take financial need into consideration, but they do require information on the borrower’s credit history. Those with a strong co-signer or a good credit history will be able to take out more money at lower interest rates.

See also: Common college scholarship requirements guide

Application process

The application processes for scholarships, grants, and student loans are all quite different – let’s get into it!

Applying for scholarships

Scholarship applications can vary widely based on the selection criteria of the organization. You may have to submit essays, academic records, proof of financial need, letters of recommendation, and sometimes even projects or video essays. Typically, the highest-value scholarships require the most materials, whereas the ones with low award amounts typically ask for less of the student.

Many of these applications will take a long time to get together; the earlier you start, the better. You can try out our scholarship search tool to receive custom-matched scholarships, updated daily, in order to remain proactive in your applications.

Applying for grants

When it comes to educational funding, grants usually refer to funding that either comes from the state, the federal government, or from your individual institution. These grants are typically based purely on financial need, and oftentimes, this need is calculated using your FAFSA.

Federal and state grants

Oftentimes, your school will automatically consider you for any federal or state grants at the time of your application. This includes the Pell Grant and many state grants; you may not have to take any steps further than submitting all the necessary application materials. However, make sure to educate yourself on any grants you may qualify for that require an additional application. Also, remember that grants have a reputation to fund on a first-come, first-served basis, so you’ll want to submit your materials as soon as possible.

Institutional grants

The best way to find out about any possible institutional grants is to reach out to your financial aid office. Ask an officer there if there are any grants available at your school that you may be eligible for. You can then make sure that you’ve filled out applications for every bit of funding you may qualify for.

See also: How to read a financial aid award letter (with examples)

Applying for student loans

Applying for student loans can look very different based on the type of loan you’re applying for. We can break it down into two main categories: federal and private loans

Federal loans

The federal student loan application process starts out like that for grants – you must begin by filling out the FAFSA. Once you submit this to your schools, you’ll receive information in your financial aid award letter regarding the loans you qualify for. Then, you’ll be able to decide which loans to accept and which to reject. The amounts you qualify for will vary based on your financial need and the year you are in college.

Private loans

The process for private loans varies on a lender-by-lender basis. However, the fundamentals remain the same; you’ll submit information about yourself (and your co-signer, if you have one) and the lender will run a credit check. 

You’ll then find out how much money you are eligible to take out and what the interest rate and repayment terms would be on those loans. It’s a good idea to shop around the student loan marketplace to find the best possible private loan options.

Also see: Best student loan repayment plans

So, which should I focus on?

The most basic answer is that you should give each of these options your attention and be proactive in each of them to find the best opportunities for you. Scholarships and grants should be your main priority, as all of this is money that you will never have to pay back. 

Since grants typically have a less labor-intensive application process, it’s a good idea to ensure that you’ve applied to any that you may qualify for. Try talking to your high school counselor for opportunities in this regard.

Scholarships also require a lot of attention. They can offer amazing opportunities (even up to a full ride!) but you have to stay on-the-ball. Keep your finger on the pulse of opportunities for many months before you begin applying to colleges.

Finally, you should be sure to focus on student loans to ensure you take out the best possible options (federal loans are generally preferable to private loans) and that you don’t take out more than you can handle.

Key Takeaways

Key Takeaways

  • Scholarships consist of money that the student doesn’t need to repay. They can be awarded based on academic merit, financial need, extracurricular activities, demographic background, academic interests, and more. They come in all different award sizes and generally require a substantial amount of work to earn
  • Grants also consist of money that the student doesn’t need to repay. However, the application process is generally simpler and based more on more concrete factors, such as financial need and geographic location. You may earn them from the federal government, the state, and/or your financial institution
  • Student loans require repayment, and borrowers must also make payments on the interest that accumulates. The two main types of loans are federal and private. It’s important to make student loan decisions wisely to ensure a healthy financial future upon graduation. You should only take out loans once you have exhausted other options.
Key Takeaways

Final thoughts

Hopefully, this guide was able to help you navigate the differences between a scholarship, grant, and student loan. Knowing about each will help you decide which would be best for you. Remember, for most intents and purposes, grants and scholarships are preferable to student loans, as they do not require repayment. 

Many students will utilize a combination of all three methods; this is normal and shows that they have researched all of their potential options. If you have any additional questions, don’t hesitate to check out other articles on our site and/or consult your high school counselor, a representative for the financial aid office at your prospective school, and respected adults in your life. Good luck!

Also see: How much student debt is too much?