Many students and parents often wonder what the differences are between scholarships and student loans, and how to best navigate these options. Understanding the nuances between them helps families make informed decisions to pay for higher education.
What is a scholarship?
A scholarship is a money-based award specifically designated for education-related expenses. Eligibility for scholarships depends on the individual scholarship program and awards can be based on merit, talent, or academic performance. They are also available through schools, private businesses, foundations, and nonprofit organizations. Typically, you do not have to repay a scholarship as it’s considered a financial gift instead of a loan. However, some scholarships have conditions that if not met, like not completing your degree, may require repayment. It’s important to understand all the terms and conditions of the scholarship before accepting.
Scholarships come in a variety of amounts, but the typical scholarship award is $11,610 per undergraduate student as of 2023-2024 .Depending on the amount awarded, a scholarship can cover the cost of a single class or your entire college education.
Is a Grant the Same as a Scholarship?
Grants are similar to scholarships in that they do not need to be repaid. They’re gift aid awarded to students most often based on financial need, but they typically come from the state government, federal government, non-profit organizations, and schools.
What is a loan?
A loan is money that you borrow with the expectation that you will pay it back, within a specified timeframe 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
Repayment
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 use for higher education expenses.
Eligibility
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. Grants are similar to scholarships in that you’ll need to apply and provide information about your financial circumstances to demonstrate need.
Eligibility for student loans differs from eligibility for scholarships – 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 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. Since many college students have not yet established either, applying for a loan with a cosigner who has both is common.
Click here to download “How To Solve The Puzzle of Paying for College”
Helpful Resources About Private and Federal Student Loans:
Private vs. Federal Student Loans
How the Private Student Loan Process Works
Pros and Cons of Scholarships, Grants, and Loans
Pros and Cons of Scholarships
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.
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 grants.
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.
At College Ave, we know that navigating how you’re going to pay for college can be stressful. To help, we’ve created a $1,000 monthly scholarship sweepstakes. We choose a new winner each month so the next one could be you!
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. At College Ave, we offer competitive interest rates on our private student loans.
How to Apply for Scholarships, Grants, and Loans
It’s best for students to apply for all types of college financial aid including grants, scholarships, and student loans. Scholarships and grants can help, but loans can provide additional funding when scholarships fall short.
How to apply for scholarships
When it comes to finding scholarships, your high school or college can be a great place to start. An advisor can help you determine what national and local scholarships are available to you. The Internet, of course, is also a terrific tool. 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
To apply for a federal grant, 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.
The U.S. Department of Education has provided helpful instructions for students who are new to filling out the FAFSA, including details on the information needed for the application. You’ll also want to speak with the financial aid department of the school where you’re attending to learn about potential private and local grants.
With federal grants, you’ll need to have your personal financial information ready for the application process.
How to apply for student loans
When applying for student loans, you can choose between federal vs private loans. To apply for a federal student loan, you’ll be required to fill out the 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’re offered doesn’t always cover what they need. To bridge the gap, taking out a private student loan could help cover costs.
You can start a Private Student Loan Application right here!
When Should I Apply for Scholarships, Grants, and Loans?
You’ll likely use a combination of scholarships, grants, and loans to pay for college. To get the money you need for school and access to federal scholarships, grants, and loans, be sure to complete the FAFSA first.
You’ll also want to search for private scholarships and grants and apply for as many as you can find. It’s a good idea to search and apply for scholarships and grants regularly.
Apply for private student loans once you have an idea of how much gift and federal aid you will receive. At College Ave, it takes less than three minutes to fill out an application for a private student loan and you get an instant decision.
