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.
Scholarships vs. Grants vs. Student Loans
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 for scholarships vary greatly, with each scholarship requiring different things for applicants. While most scholarships are academic, merit, or talent-based, there are also those based on interests, college major, or background.
Grants also have specific eligibility criteria for those who apply, but these are most often based on financial need rather than talent or merit.
To obtain federal student loans, students need to first complete the FAFSA (Free Application for Federal Student Aid). Doing so will determine whether a student meets the financial and other eligibility requirements needed to apply for loans. Private student loans are a little different – lenders will typically look at one’s credit history and income to assess whether a student may obtain such a loan.
The application processes for scholarships, grants, and student loans are all quite different – let’s get into it!
Applying for Scholarships
Unlike grants and student loans, applying for scholarships usually does not require you to fill out the FAFSA (woohoo!). Asking your advisor about local scholarships or searching online are both great ways to start your scholarship search.
Recommended: Scholarship Search Tool
Many scholarships require you to write an essay of some sort, while others may require you to work on a project. To spare you of any wasted time, make sure to read the qualifications and instructions for each scholarship before you start. Some scholarships may also require letters of recommendation; if so, make sure to reach out in advance to the person who will be writing your letter. The more time they have, the more thought they will be able to put into your recommendation.
Applying for Grants
Before applying to any grants, you must first fill out the FAFSA. Once you’ve done this, your college or school will determine how much will you receive based on your financial need. To learn more about the specific eligibility criteria for certain grants, visit their individual pages for more information. Many grants are awarded on a first come, first served basis and can run out of funds. This is why it is so important to complete the FAFSA as soon as possible after October 1st so you can be eligible for your maximum grant award.
If you’re awarded a grant and wish to keep receiving it every year, be sure to fill out the FAFSA again for every year you’re in school.
Applying for Student Loans
The federal student loan application process starts out like that for grants – you must begin by filling out the FAFSA. On the bright side, however, you only have to do it once (per year, at least)! So, if you’ve already filled it out to apply for grants, there’s no need to do it again. After this, you can work with your college’s financial aid office to finalize and accept the student loan and will typically be able to borrow up to a certain amount of money for each semester.
The amount of money offered is typically enough to cover the costs of students’ educations. However, if you find that this is not the case for you, no need to worry! You can apply to private student loans as well. To do so, you should apply directly on the website of the bank or credit union that you wish to borrow the loan from.
Pros and Cons (Scholarships, Grants, Student Loans)
Before filling out any applications for scholarships, grants, or student loans, it’s important to consider the benefits and drawbacks of each one. This will help you make the best decision for your particular financial situation. Keep in mind that many students will pay for college using a combination of scholarships, grants, and student loans.
Without further ado, here are the pros and cons of each option:
Scholarships: Pros and Cons
- Are awards – no need to be repaid
- Can receive an unlimited amount of scholarships
- Large financial supply for awarding scholarships (there are many of them)
- More selective; award students based on unique talents, merit, or exceptional academics
- Amount you’re awarded can impact your financial aid package (the more scholarships you receive, the less it is believed you need help from other sources – like grants or loans)
Grants: Pros and Cons
- Considered “gift aid” – no need to be repaid (most of the time)
- Very straightforward process (fill out your FAFSA!)
- Based almost entirely on financial need
- If you no longer fulfill the requirements for your grant, you may need to repay (if you receive other forms of funding that reduce your need for financial aid, if you drop a class, etc.)
- More limited in number/funding than scholarships
Student Loans: Pros and Cons
- Helps you establish/build your credit
- Need to be repaid (you will also have to pay interest)
- Have a certain time frame to pay back your loan
- Some people have to spend many, many years paying off their loans (after graduation)
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. Also, keep in mind that you can utilize all three. If you need additional help deciding, you should meet with a financial or college admissions advisor at your college or university. Lastly, good luck with putting together your financial aid package!