Differences Between Scholarships, Grants and Student Loans

Posted on September 14, 2016 in Scholarships

What Are the Differences Between Scholarships, Grants, and Student Loans?

Students and parents who are new to to the college financial aid game can be overwhelmed by forms, deadlines, and terminology. Knowing the difference between common terms and phrases can prove quite beneficial for anyone hoping to receive financial assistance to pay for tuition and other college expenses.

Three common forms of student financial aid are scholarships, grants, and student loans, and a student may qualify for all of these. Misconceptions and misinformation about each of these types of aid are common. Read on for a better understanding of each, and how they are similar to, or different from, one another.


Scholarships are financial awards that are given to students without the expectation of repayment. Scholarships are often deemed 'free money.' Scholarships are funded by various sources, including individual colleges and universities, state education departments, independent and non-profit organizations, large corporations, and local churches, clubs, and charities.

Companies and organizations often create scholarships that relate to causes that are important to the company and its culture. For example, a group called Digital Responsibility awards a $1,000 scholarship to a student who affirms their dedication to not texting and driving, a cause that the group is passionate about. The Coca-Cola company recognizes student leaders with scholarships from its Coca-Cola Scholars Foundation.  

Scholarships almost never fall into a student's lap; students must proactively seek out scholarships for which they may qualify, and submit an application and supporting documentation required by the scholarship selection committee.

Legitimate scholarships almost always require students to meet certain criteria (a scholarship with little or no criteria could be a scam). Academic scholarships are those with criteria that require students to have exceptional grades and test scores. Degree-based scholarships are for students who plan to study a specific subject in college. Athletic scholarships require students to excel at a particular sport throughout high school, and to play that sport for the college or university that they will attend.

Scholarships vary in amount; a single student could receive a scholarship in the amount of $1,000, and a separate scholarship in the amount of $5,000. Depending on the scholarship provider, the winner may receive the funds via a check, or the funds may go directly to the student's college.

Some students may apply for multiple scholarships and not win any awards at all. Since the chances of winning a scholarship are not usually based on a student's financial need, but on the number of qualified scholarship applicants that they are competing against, it is difficult to determine any one student's odds of winning any one particular scholarship.

There are millions of college scholarship opportunities available to all types of students, whether or not they rank at the top of their high school class, or participate in drama and music, as opposed to sports. Using a scholarship search website like Fastweb.com can help students and parents identify scholarships for which they may qualify.


Similar to scholarships, grant money that is awarded to a student for college does not require repayment after graduation. Grants can also come from colleges or universities, states, and private organizations.

The key thing that makes a grant different from a scholarship is that grants are usually based on a student's financial need. The federal government has four different grants that it awards to thousands of students each year, three of which require the student to qualify for financial assistance in order to attend college.

In order to qualify for federal, and most state, grants, a student must submit the Free Application for Federal Student Aid (FAFSA), which is a form that is used to gather information about a student's financial situation. Completing the FAFSA is the first step in qualifying for all federal student aid programs, and most state student aid programs. Information from the FAFSA is also sent to the college or university that a student plans to attend, which may have its own grant to award to the student.

Similar to scholarships, private grants (not funded by the federal or state government) require the student, or student's parent(s), to seek out available opportunities and find out how they can qualify for them. Some employers offer special grants to the children of employees, and some churches or non-profit groups also have grant money that they award to college students every year.

The amount of each grant, and how the funds are distributed to the winners of the grants, are different and depend on the company or organization that sponsors the grant.

Student Loans

Student loans are different from college scholarships and grants, in that loans require repayment once the student either stops attending, or graduates from, college.

Like with grants, students can qualify for federally- or state-funded student loans by completing the FAFSA online. Students (and their parents, if they are of traditional college age), must submit the FAFSA each year to demonstrate the family's financial need for additional funds. Students may receive different financial aid awards each year as they progress through their college program, including various loan options or amounts.

Depending on their financial need (in a given year), students may qualify for different types of federal student loans, each of which come in different amounts and with different terms. Federally funded student loans usually have a fixed interest rate for the life of the loan. Some loans do not require students to pay interest on the loan while enrolled in college, while others do.

Government-issued student loans are always taken out by the student in his or her name, so they–not their parents–are responsible for repayment of the loan.

Some students choose to take out private student loans instead of, or in addition to, federal student loans. Private student loans come from traditional banks or credit unions, and these days can also be taken from online lenders . Applying for a private student loan is just like applying for a car loan. A private student loan will usually be approved if a student (and their co-signer, if they have one) has a good credit score, as well as some savings or means of income to pay back the loan.

Unlike a federal student loan, private loans often have interest rates that are not fixed (known as variable rate loans), and have strict repayment terms and timelines. Both federal and private loans generally have six month 'grace periods', allowing students up to six months of no repayment immediately after they stop attending, or graduate from, college.

Pros and Cons

All types of student aid can be beneficial when a family is short on funds to cover the high price of attending college. Scholarships might seem to have no 'cons' to them, but many come with requirements that students must meet or maintain in order to keep the money.

The fact that student loans require repayment of funds makes them less desirable than scholarships or grants, but student loans can usually cover more expenses than the average scholarship or grant. Since not everyone qualifies or ends up being awarded a scholarship or grant, student loans may be a good option.

Even if a student receives multiple types of aid, the combination of funds will not usually pay for a full semester or year of college. Oftentimes, the school at the top of his or her list is still too expensive and an out-of-pocket payment is required. Students and their families should sit down and discuss their options and priorities.  

Certain groups of students have limited eligibility for federal student aid, including international students, non-US citizens, individuals who are currently incarcerated, and individuals who have been convicted of a drug-related crime.

In Conclusion

From a traditional-age student who plans to attend a four-year college or career school, to an older student who is getting a later start, scholarships, grants, and student loans offer access to money that can assist in paying for college. Students from all walks of life, and with all types of career paths, qualify for some type of student financial aid every year.

The U.S. Department of Education website provides helpful checklists for students and parents to ensure that no student misses an opportunity to learn about and earn financial aid. For additional answers to questions, students and parents should consider contacting high school guidance counselors and college financial aid officers. The staff in these offices have a wealth of knowledge gained from experience and training.

Finding ways to save money on college bills may seem like a lot of work at first glance, but with a little forethought and planning, most students and families can find financial aid options that work for them. The money saved, and peace of mind, will be well worth it in the long run.







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