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    Differences Between Scholarships and Student Loans

    By Lisa Freedland

    Lisa Freedland is a Scholarships360 writer with personal experience in psychological research and content writing. She has written content for an online fact-checking organization and has conducted research at the University of Southern California as well as the University of California, Irvine. Lisa graduated from the University of Southern California in Fall 2021 with a degree in Psychology.

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    Reviewed by Annie Trout

    Annie has spent the past 18+ years educating students about college admissions opportunities and coaching them through building a financial aid package. She has worked in college access and college admissions for the Tennessee Higher Education Commission/Tennessee Student Assistance Corporation, Middle Tennessee State University, and Austin Peay State University.

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    Edited by Maria Geiger

    Maria Geiger is Director of Content at Scholarships360. She is a former online educational technology instructor and adjunct writing instructor. In addition to education reform, Maria’s interests include viewpoint diversity, blended/flipped learning, digital communication, and integrating media/web tools into the curriculum to better facilitate student engagement. Maria earned both a B.A. and an M.A. in English Literature from Monmouth University, an M. Ed. in Education from Monmouth University, and a Virtual Online Teaching Certificate (VOLT) from the University of Pennsylvania.

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    Updated: May 2nd, 2024
    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 and what differentiates them.

    See also: Grants vs. Scholarships

    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. 

    Common scholarships have 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 don’t need to be repaid, but they are based on financial need

    As a result, you will likely have to fill out FAFSA or the CSS Profile to prove your financial status. 

    Pell Grants are a particularly well-known type of grant, offered only to undergraduate students demonstrating great financial need. While the maximum award for the 2023-2024 school year was $7,395, the amount you receive 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 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 be repaid as long as you continue to fulfill the obligations of 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 after you graduate. Fortunately, there are repayment plans and loan forgiveness programs that can make paying back your loans possible. 

    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 on financial need 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, don’t take financial need into consideration, but they 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, resumes or video essays. Typically, the highest-value scholarships require the most materials, whereas the ones with low award amounts typically ask for less.

    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.

    Colleges will often automatically consider you for scholarships when you apply. However, it’s best to apply as soon as possible for the maximum award. After all, the early bird gets the worm!

    Also see: Do I have to pay back scholarships if I drop out of college?

    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.

    Also see: How much student debt is too much?

    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 grants 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, and make sure that you apply for all the scholarships you qualify for while you are eligible!

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    Frequently asked questions about the differences between scholarships and student loans

    Does having scholarships impact my loan offerings?

    No. Scholarships usually have no impact on student loans, especially since they are typically used to supplement whatever aid you already have.

    Is it possible to have too much aid?

    Yes and no. If you receive enough outside funding, your desired school can sometimes lower your financial aid package to compensate. However, if you only have outside funding, it’s possible to put the remaining balance toward school supplies and other expenses.

    Is it hard to pay back student loans?

    It depends. If you start paying while in school or implement a repayment plan, it can be easier to pay loans back. Still, loans can stack up quickly with interest rates and time, so they should be taken out after all other options have been exhausted.

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