Grants, Scholarships & Loans: What’s the Difference?
Drexel University School of Education
Whether you’re attending college for the first time or are pursuing an advanced degree, paying for tuition, supplies, and other costs associated with college can be a daunting process. Fortunately, there are various forms of financial aid for higher education available to help make investing in your education financially feasible.
- Grants and scholarships are free aid (otherwise known as “gift aid”), meaning they don’t need to be paid back, making them the most sought-after options. The main difference between a grant and a scholarship is where the funds come from, eligibility criteria, and the application process. In general, grants are given based on financial-need, while scholarships are merit-based and awarded to students based on their academic achievements, extracurricular activities, field of study, and more.
- Loans are the more commonly-used type of financial assistance. The difference between loans and a grant or scholarship is that they’re not “free” and need to be repaid, with interest. However, they often have fewer requirements to qualify and are in greater supply, so they’re accessible to a broader range of people.
The following will break down the differences between these types of financial aid to help you fund your educational pursuits.
Financial Aid Grants for College
As mentioned above, college grants are given to students who have a financial-need, with funds coming mostly from federal and state government. The needs to qualify for a grant can include but are not limited to:
- family income and status
- cost of the school
- disability status
Some of the major, government-funded grants include the Teach Education Assistance for College and Higher Education Grants (TEACH), Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), and Iraq and Afghanistan Service Grants. However, there are other options available depending on if you’re entering an undergraduate or graduate program, if you’re obtaining financing for a research project, or if you’re an international student.
The following breaks down the pros and cons of college grants for financial aid:
|Pros of College Grants
|Cons of College Grants
|Grants don’t need to be repaid, assuming the requirements are met (maintaining a certain GPA, completing the program, etc.).
||There are fewer grant options compared to scholarships because grants are mostly based on financial-need.
|It’s possible to get more than one grant based on your financial-need, field of study, and other qualifiers.
||There are limited funds to provide and grants can be highly competitive.
|Grants provide opportunities and funding for students from low-income families or communities to pursue higher education.
||Grants are often not enough to pay for all college expenses.
|The application process for grants is simpler and more straightforward vs scholarships.
||There are often more restrictions with the funds coming from grants.
Applying for grants starts with filling out the Free Application for Federal Student Aid (FAFSA), which determines how much financial assistance you need based on factors like your household income.
After filing a FAFSA, you’re automatically considered for many of the major federal grants. Since it’s the first eligibility requirement for most grants, as well as certain scholarships and loans, it’s essential you fill out the FAFSA as soon as possible.
Learn more about grants available for students studying education, in both undergraduate and graduate programs at Drexel School of Education.
Scholarships for High School and College Students
Scholarships are another great free source of money for college that are offered by many companies, schools, non-profits, and other organizations. The main difference between a scholarship and a grant is that they’re based on more than just financial-need. There are several types of scholarships awarded to students based on several scenarios:
- Academic excellence
- Students studying an in-demand field
- Exceptional athletic performance
- Students of a specific ethnicity or group such as Native Americans or the LGBT community
- Scholarship competitions
The options are plentiful, so it’s important to do your research to see what might be applicable to you. Be sure to check out the available undergraduate scholarships and graduate scholarships offered by Drexel.
The following breaks down the pros and cons of scholarships for financial aid:
|Pros of College Scholarships
|Cons of College Scholarships
|Scholarships don’t need to be repaid, assuming the requirements are met (maintaining a certain GPA, completing the program, etc.).
||In some cases, deserving students aren’t rewarded scholarships because the criteria can be subjective.
|There are many more scholarships available vs grants.
||Since there are so many options and sources for scholarships vs grants, you’ll have to do more research and put in more time.
|Scholarships provide access to education to a larger number of students.
||The large amount of options also makes competition high for most scholarships.
|Scholarships look great on your resume when applying for jobs.
||There are often more conditions and requirements for maintaining the scholarship funds.
When applying, the requirements and deadline depend on the specific scholarship. Many require an essay to be written, but it really can vary by type of scholarship. Be sure to thoroughly read through the scholarship website and application to ensure you’re fulfilling all the requirements. Some scholarship deadlines are up to a year before you graduate, so it’s recommended to start doing your research sooner rather than later.
For high school students, make sure you communicate with your guidance counselor. They can point you in the right direction and keep you on track. Also, it’s important to remember that your cumulative student aid can’t be more than the total cost of the college. So, make sure you keep close track of the total amount of aid you’re getting in all its forms.
Student Loans by Type
After finding out what free aid you qualify for, student loans are the next step. Loans are offered by the federal government as well as private institutions, and they’re the most common form of financial aid for college.
Federal loans are more desirable because they have lower interest rates, allow for flexibility with payments, and provide other benefits such as loan consolidation and deferred payments. Private loans, the more common type of student loan, are provided by banks, credit unions, and other private organizations. Since the terms and conditions are dependent on the lender and not protected by the same laws federal loans are, private loans typically have higher interest rates as well as less benefits and flexibility.
The following breaks down the pros and cons of student loans for financial aid:
|Pros of Student Loans
|Cons of Student Loans
|Student loans are easier to get compared to grants and scholarships.
||Unlike grants and scholarships, student loans need to be repaid.
|Student loans often provide a larger amount of money compared to other financial aid options.
||Interest rates, especially with private loans, can make repaying the debt take a longer amount of time.
|The money from a student loan can be used on other expenses outside of tuition.
||Students will sometimes need to take on additional jobs during school to help cover the costs of a student loan if they’re due before graduation.
|Paying off student loans on time helps build and establish credit.
||Not paying off loans on time or defaulting will damage your credit.
The following are some common questions students have about loans:
When do I have to start making payments?
Federal student loans aren’t due until you graduate, leave school, or change your status to less than half-time. Private student loans are often due while still in school, but some lenders will let you defer payments until you graduate.
Where can I find out how much I owe?
If you don’t know your student loan service provider, you can find your federal loan balances on NSLDS. For private loans, you can check with your school’s financial aid office.
What is an income-driven repayment plan?
For federal student loans, income-driven repayment plans set your monthly payment based on your income and family size. You can fill out an application to be on this kind of plan if you qualify for federal student loans.
What is the best private student loan?
The “best” loan option depends on what you’re looking for, but the most popular lenders include Citizens Bank, College Ave, LendKey, Sallie Mae, and CommonBond. Regardless, it’s always important to look at associated interest rates and fees with any private loan.
What qualifies you for student loan forgiveness?
There are various reasons for student loan forgiveness (also called cancellation or discharge, depending on the reason), and it’s only possible with federal loans. Some common reasons include teaching in a low-income school for five total years, your school closes while you’re enrolled or soon after, or if you work in some government of non-profit jobs for ten total years and repay loans based on income.
What kinds of federal student loans are available?
Subsidized federal loans are available to students who have a financial-need for the assistance, which means the government will pay the interest while you’re in school and for a grace period after graduation. Unsubsidized loans are available to all students regardless of financial-need, but the student is responsible for all interest.
There are also PLUS and Perkins loans. PLUS loans are offered to parents of dependent undergraduate students, as well as graduate or professional students. Perkins loans are for students with a significant financial-need and are based on the school.
How can students apply for loans?
The process will vary depending on if it’s a federal or private student loan. For federal loans, the first step is submitting the FAFSA. Once reviewed, the data is used to award financial assistance depending on the financial-need. For private loans, the process can vary by lender. However, it normally involves providing them your financial information and selecting your desired rate and repayment option.
Learn more about applying for federal and private loans, including what repayment plans and interest rates are available and any differences for undergraduates and graduates.