How are Scholarships, Grants, and Student Loans Different, and Which Is the Best for You

Scholarships, grants and student loans are the three most popular types of financial aid. There are significant differences among them, including how you can qualify for them, what you can do with the money, and whether or not you need to give the money back. In this article, you will understand how each works and which is best for you.

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When you think about the main financial aid types for students, it is easy to spot some key characteristics for each:

Scholarships are usually merit-based awards offered for academic achievements or excellence in a specific field;
Grants are need-based awards;
Student loans are money you borrow but have to pay back after you graduate.

This is how grants and scholarships differ from student loans: the first two are free money; the third is not.

Each of these financial aid options serves different needs and circumstances, and understanding where they are different and similar is vital if you want to make the best choice.

Let’s understand what scholarships are

A scholarship is money given to students to help finance their education. This money doesn’t have to be repaid. It can cover the entire cost of your education, which makes them an excellent choice for students. The downside of scholarships is that they are highly competitive.

Typically, scholarships are provided to promote academic excellence, to support highly talented people, to bring more equality of chances for young people, to support specific groups (often disadvantaged), and to advance certain fields of study. Universities and colleges, private organisations, non-profit entities, and governmental bodies award them. So it is easy to understand that scholarships at the most popular universities are the most difficult to obtain.

There are many types of scholarships, including merit-based, talent-based, field or background-specific. You can learn about them in our Complete Guide on the Different Types of Scholarships.

Key takeaways about scholarships, when compared to other types of financial aid:

Scholarships, unlike student loans, don't need to be repaid; they are similar to grants on this matter.
Scholarships are often awarded based on your achievements or talents, but they can also be need-based or criteria-specific (which means some scholarships are awarded to students from specific countries or cultural backgrounds, restricted to a specific discipline, etc.)
Many scholarships come with specific conditions: for instance, you might need a certain GPA (Grade Point Average), involvement in community service, or to commit to continue studying in a particular field after receiving the award.

How grants compare to scholarships

Grants, like scholarships, are non-repayable funds awarded to students to support their academic pursuits. Picture them as a helping hand, extending financial aid to those who need it, with a big focus on how big your need for help is, and a smaller focus on achievements (academic or otherwise).

Similar to scholarships, there are a variety of factors influencing how a grant is allocated. Financial need is the most common one, as many grants are designed to support students who would not be able to pursue higher education otherwise. Other deciding factors can be research proposals, particularly for Master’s and doctorate degrees, or the field or discipline you want to study.

Key takeaways about grants, when compared to other types of financial aid:

Grants, in essence, do not need to be repaid. However, they might turn into a repayable form if you do not meet the specific conditions based on which you received the money. For example, you don’t graduate, or you spend the money on something other than eligible expenses.
They are typically need-based or project-based aid, provided by governments, universities and colleges, or non-profits. They are awarded to students in financial need, or ones belonging to specific backgrounds.
Students who receive grants may be required to fulfil certain obligations, like submitting periodic research progress reports, thus ensuring the funds are being used for their intended purpose.

What makes student loans significantly different

Student loans represent money students borrow to cover their educational expenses, including tuition fees, accommodation costs, school materials, and other related costs.

Unlike scholarships and grants, these funds must be repaid over time. Sometimes universities can offer zero-interest loans to students, but most often, if you get a student loan, you pay interest.

Student loans can be awarded by both public and private organisations. The public ones usually offer lower interest rates and more flexible repayment conditions than private loan providers. The student loan system is very popular in the US, but it is also a type of refundable aid frequently used in the UK.

Similar to scholarships and grants, you need to meet specific criteria to receive a student loan:

Creditworthiness: your (or your parents’) credit history is checked.
Financial need: government loans especially take financial needs into consideration.
Educational programme: the type and duration of the educational program (undergraduate, graduate, professional training) can influence loan terms and amounts.

Key takeaways about student loans, when compared to other types of financial aid:

Student loans must be repaid with interest, which makes them different from scholarships and grants.
Repayment plans can vary. Some loans have a grace period post-graduation before repayments begin, while others require immediate repayment.
Unless you are aware of your interest rates and loan terms before applying, you are likely to find yourself in challenging financial situations because of accumulated interest.

Scholarships vs. Grants vs. Loans

While scholarships, grants, and student loans all aim to aid students in their educational journey, they have distinct characteristics that differentiate them.

Similarities

Purpose: in essence, all three – scholarships, grants, and student loans – are designed to assist students in covering educational expenses so that their financial situation doesn’t stop them from getting an education.
Rigorous application: regardless of the type, you need to meet specific criteria to qualify. Applying for financial aid as a student is often a thorough and rigorous process.

Differences

Repayment or no repayment: this is the fundamental difference between student loans, which must be repaid, and scholarships and grants, which are non-repayable financial awards.
The goal behind the money: the rationale behind the award differs; while scholarships are primarily given based on merit, grants are need-based awards, and receiving a loan depends on your ability (or potential ability) to repay it.
Duration and renewal: scholarships are typically a one-time award or require periodic renewals, grants can be either one-off for a particular project or recurring based on continued financial need or progress in research, and loans have a fixed term for repayment, often post-graduation.

How do you decide what's best for you?

Scholarships and grants are the best types of financial aid because they do not need to be repaid. Student loans should be a last resort, as they can be a burden to repay after graduation.

However, student loans can be a necessary option for some students. Usually, this happens if you don’t meet the eligibility criteria or you don’t have high enough grades or a strong enough application.

To make sure your application is rock solid and you increase your chances of getting a scholarship, check out our article on how to write a motivation letter for your scholarship.

If you do need to take out student loans, be sure to shop around for the best interest rates and terms. You should also make a plan for how you will repay your loans after graduation.

Here are some tips for managing student loan debt:

Make a budget and include monthly student loan payments.
Consider setting up automatic payments so you never miss a payment.
If you have trouble making your payments, contact your lender to see if you qualify for a deferment or forbearance.
Explore options for student loan consolidation or refinancing.

Scholarships, grants, and student loans are all options for students who need help paying for college. Scholarships and grants are the best types of financial aid because they do not need to be repaid. Student loans should be a last resort, but they can be a necessary option for some students. If you do need to take out student loans, be sure to shop around for the best interest rates and terms and make a plan for how you will repay your loans after graduation.

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