What’s the Difference Between Grants, Scholarships, and Loans?

Scholarships, grants, and loans are some of the many options available to help you pay for your college education. But figuring out how to access and combine them can be overwhelming.

To take some stress out of the process we’ll answer questions like, “How do you qualify for a grant vs. a scholarship?” and “How do you apply for student loans vs. scholarships?” Plus, we’ll show you how to apply for scholarships, grants, and loans as well as the best way to put them all together so you can save the most money.

Let’s get started with some basic definitions of scholarships, grants, and loans.

What is a scholarship?

A scholarship is a money-based award specifically designated for education-related expenses.

Qualification for scholarships depends on the individual scholarship program and awards can be based on merit, talent, or academic performance.

They come in a variety of amounts, but the typical scholarship award is $9,520 per undergraduate student as of 2018-2019 and can cover the cost of a single class or your entire college education. Scholarships are also available through a wide variety of sources, including schools, private businesses, foundations, and nonprofit organizations.

What is a grant?

Grants are gift aid awarded to students often based on financial need. 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 deadline 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 entitles like banks and credit unions. To qualify for a private student loan, you’ll need to demonstrate your ability to pay the loan back, usually with a cosigner.

Primary Differences Between Scholarships, Grants, and Loans


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 keep.

You’re probably thinking, “Great! How do I get the money I can keep?”

That depends – another major difference between scholarships, grants, and loans is how your eligibility for each is determined.


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.

How do grants differ from scholarships?

Grants are similar to scholarships in that they do not need to be repaid, but they differ in that they are typically based on financial need – not on merit or performance.

To obtain a grant, you’ll have to provide information about your financial circumstances to demonstrate that need.

How do loans differ from grants and scholarships?

Loan money tends to be more accessible than grant and scholarship money.

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 and financial need 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

Pros 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.

Cons 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 federal student loans.

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.

Interest rates on student loans tend to be much lower than the interest rates on personal loans. CreditKarma recently reported that the average interest rate for private loans in the first quarter of 2018 was 10.22 percent. At College Ave, we offer competitive interest rates on our private student loans.

How to Apply for Scholarships, Grants, and Loans

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 are offered doesn’t always cover what they need. To bridge the gap, taking out a private student loan could be an option to cover costs.

If you’re applying for a private student loan like the ones we offer at College Ave, you’ll need a few things to get started:

  1. Social Security number
  2. estimated annual income
  3. school name
  4. amount you’d like to borrow

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.


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