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

A guest post by Jeff Manors

Jeff Manors recently graduated from college with a lot of debt. He is happy to help others reduce how much debt they leave college with because he knows how hard it can be to have a lot of it. He is currently writing for online scholarship Info

Most people already know one key difference between scholarships, grants, and loans: of the three, only loans have to be paid back. Both scholarships and grants will never have to be paid back, so they could be called free money.

The catch is that you often have to either do some work or meet specific requirements (sometimes both) in order to get a scholarship or a grant, so it’s not completely free since it will take time and effort to get. Furthermore, if those scholarships or grants come from the government, they are being funded, at least in part, by the taxes you are paying. But, since you have to pay those taxes anyway, you might as well try to get some benefit out of it.

Before we completely dive into the difference, let’s point out one interesting similarity. All three require applications of some sort in order to obtain them. To go along with this, that means that all three have certain requirements that must be met. Not everybody can get a loan, though the requirements for a loan are often considerably lower than the requirements for a scholarship or grant.

So, here are the differences:

Schola
rships – scholarships are always for the purpose of sending someone to school. They are usually given based on one of two things: achievements and need. Having higher grades can earn you a scholarship, but so can having less money than most people. In rare cases, both are necessary in order to get a particular scholarship. Scholarships never have to be paid back, and usually the government is the one funding the scholarship, though sometimes other non-profit organizations will. This is also the easiest to get online through certain online scholarship programs.

Grants – grants are given in order for the grantee to complete a specific venture. Sometimes that venture is opening a small business, sometimes it is getting a college education. Grants often require proposals in order to obtain them, and they are usually based on what you want to do and your qualifications for completing that venture. In rare cases, grants can be need-based, like many scholarships. The Pell Grant, for example, is paid by the government to students who have low-income backgrounds. Grants can be from the government or other non-profit organizations, though government grants are more common. Again, these never have to be paid back.

Loans – loans can be for a variety of different things. Personal loans for buying a car or computer are fairly common, as are house loans and student loans. In most cases, you must meet certain minimum income requirements and credit score requirements that vary based on the amount you wish to borrow in order to qualify. If you do not qualify, someone who does must co-sign your loan, which means they promise to pay it if you fail to. Most loans come from private lenders, but the government does offer special student loans that might not need a co-signer. Student loans are almost always deferred until graduation, which means you won’t have to start paying them back until a set amount of time after you graduate. However, for most student loans, interest will continue to build even while you’re still attending school, so you should be careful about how much you borrow.

Scholarships and grants are very similar for most students, but loans are quite different. Try to avoid loans if you can, but it’s better to borrow and get a college degree than to not get a college degree at all.