How is a Student Loan Different from a Scholarship? Comprehensive Analysis 2023

How is a Student Loan Different from a Scholarship?

Have you ever wondered how is a student loan different from a scholarship? If yes, then we will provide you with all you need to know today.

Pursuing higher education is a transformative journey, but it often comes with a hefty price tag. To bridge the financial gap, students have various options, including student loans and scholarships.

While both provide financial assistance, they differ significantly in terms of funding, repayment, and impact on your financial future.

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.

In this blog post, we’ll explore the key differences between student loans and scholarships to help you make informed decisions about financing your education.

How is a Student Loan Different from a Scholarship?
  • 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 subheadings will, however, break down the differences between these types of financial aid to help you fund your educational pursuits.

Student Loans vs. Scholarships: What’s the Difference?

When you’re deciding how to pay for college, one of the most important things to consider is the difference between student loans and scholarships. Both can help you finance your education, but there are some key differences between the two.

Student loans are money that you borrow from a lender, such as a bank or the government. You must repay student loans with interest, plus any fees that you may have incurred. Student loans can be used to cover a variety of expenses, including tuition, fees, books, and living expenses.

How is a Student Loan Different from a Scholarship?

Scholarships are financial aid that you do not have to repay. Scholarships are typically awarded based on merit, such as academic achievement, athletic ability, or community service. Scholarships can also be awarded based on financial need or other factors.

Here is a table that summarizes the key differences between student loans and scholarships:

CharacteristicStudent LoanScholarship
RepaymentMust be repaid with interestDoes not need to be repaid
EligibilityBased on creditworthiness and cost of attendanceBased on merit, financial need, or other factors
Funding sourceBanks, governmentColleges, universities, foundations, other organizations
Use of fundsCan be used to cover any educational expensesTypically can only be used to cover tuition and fees

Tips for Finding Scholarships

If you are interested in finding scholarships, there are a few things you can do:

  • Start your search early. There are many different scholarships available, and the application deadlines can vary.
  • Talk to your school counselor. Your school counselor can help you learn about the different scholarship programs that are available and can help you with the application process.
  • Search online. There are many websites that list scholarships. You can search for scholarships by keyword, category, and other criteria.
  • Apply for as many scholarships as possible. The more scholarships you apply for, the better your chances of being awarded one.


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
How is a Student Loan Different from a Scholarship?

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 GrantsCons 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.

How is a Student Loan Different from a Scholarship?


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 LoansCons 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.

Difference between Student Loan ans Scholarship

1. Source of Funding

Student Loans: Student loans are typically offered by financial institutions, the government, or private lenders. When you take out a student loan, you are essentially borrowing money that you’ll need to repay, often with interest.

Scholarships: Scholarships, on the other hand, are typically awarded by institutions, organizations, or individuals to support a student’s education. Scholarships are a form of financial gift or grant and do not need to be repaid.

2. Repayment

Student Loans: One of the most significant differences between student loans and scholarships is the requirement to repay the borrowed funds. Student loans come with repayment terms, usually starting after graduation or when you leave school. These loans often accrue interest over time, potentially leading to higher repayment amounts than the initial borrowed sum.

Scholarships: Scholarships do not require repayment. They are essentially “free money” that helps cover the cost of your education without the burden of future debt. Scholarships are awarded based on various criteria, such as academic achievement, financial need, extracurricular activities, or specific talents.

How is a Student Loan Different from a Scholarship?

3. Eligibility and Criteria

Student Loans: Eligibility for student loans is generally based on your creditworthiness (for private loans), the cost of your education, and whether you meet specific federal or private lender requirements. In most cases, you can access student loans regardless of your academic performance.

Scholarships: Scholarships have diverse eligibility criteria. While some are based solely on academic merit, others consider factors such as community involvement, leadership skills, or specific career goals. Scholarships often have more specific requirements and may target particular demographics or fields of study.

4. Application Process

Student Loans: Applying for student loans typically involves completing a loan application, which may require credit checks and documentation of your financial situation. Federal student loans also require the Free Application for Federal Student Aid (FAFSA) for eligibility determination.

Scholarships: Applying for scholarships varies widely depending on the scholarship provider. Some scholarships require a simple application, while others may involve essays, interviews, or the submission of a portfolio or project. It’s essential to research and follow the specific application instructions for each scholarship opportunity.

5. Impact on Your Financial Future

Student Loans: Taking on student loans can lead to significant debt after graduation. Monthly loan payments can affect your ability to save, invest, or achieve other financial goals in the short term. Managing student loan debt is crucial to avoid default and maintain good credit.

How is a Student Loan Different from a Scholarship?

Scholarships: Scholarships have a positive impact on your financial future. They reduce the financial burden of education, allowing you to graduate with less or no debt. This financial freedom can give you greater flexibility to pursue career opportunities, start saving, or invest in further education.

Which is the Better Option?

Whether student loans or scholarships are the better option for you depends on your individual circumstances. If you have good credit and can afford to make monthly payments, student loans may be a good option for you. However, if you have limited credit or cannot afford to make monthly payments, scholarships may be a better option.

It is important to note that student loans can have a significant impact on your financial future. Before you take out student loans, it is important to understand the terms of your loan and to make sure that you can afford to repay it.

Conclusion: How is a Student Loan Different from a Scholarship?

In summary, student loans and scholarships are distinct financial resources for funding your education. Student loans involve borrowing money that must be repaid with interest, potentially leading to long-term debt. Scholarships, on the other hand, are grants that do not require repayment and are awarded based on various criteria.

When planning for your education, it’s essential to weigh the pros and cons of each option and seek out scholarships that align with your qualifications and goals. By making informed decisions, you can minimize the financial burden of your education and set yourself up for a more secure financial future.

About Soliu jamiu Ishola 182 Articles
My name is Jamiu, and I help people simplify their searches by providing them with the best answers or solutions to their problem! Just like anybody else, I'm an online entrepreneur who writes from the trenches.

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