Grants, scholarships, and student loans can all help you pay for your education. But there are key differences between them: how they award funds and whether you need to repay them. Grants and student loans often depend on financial eligibility and need, while scholarships tend to be merit-based. And while both grants and scholarships don’t need to be repaid, student loans do.
Here’s a breakdown of how student loans and grants vs. scholarships work, as well as some of their key differences.
Table of Contents
Key Points
• Grants and scholarships don’t need to be repaid, but student loans do.
• Grants are usually need-based, while scholarships are typically merit-based.
• Student loans can be federal or private and may have subsidized or unsubsidized interest terms.
• Free Application for Federal Student Aid (FAFSA®) is required to apply for most federal aid, including grants and loans.
• Scholarships and grants should be maximized first; loans can cover any remaining costs.
What Is a Student Loan?
A student loan is money borrowed for educational expenses that must be repaid (usually with interest). You can take out a loan from a bank, an online lender, a college or university, or the state or federal government. If you’re wondering about grants vs. loans, both are based on financial need, but what sets them apart is that grants don’t need to be repaid, whereas student loans do.
So, how do student loans work? Loan terms for college can vary based on a few different factors: whether they’re federal (offered by the government) or private (offered by a financial institution), whether you choose fixed or variable interest rates, how long it takes to pay the loan back, and how much can be borrowed. Loans offered to you could be based on your credit score or the personal financial information you supply on the FAFSA.
How to Apply for a Student Loan
To determine your eligibility for a student loan from the federal government, you must fill out the FAFSA. States and colleges may use information from your FAFSA to determine state and school-specific aid, as will some private financial aid providers.
To fill out the FAFSA form, you’ll need a few pieces of information, including:
• Your Social Security number or alien registration number (if you aren’t a U.S. citizen)
• Your driver’s license number (if you have one)
• Federal income tax returns, W-2s, and other records of money earned
• Bank statements and records
• Records of untaxed income (if applicable)
• Information on account balances, investments, and assets
• Federal Student Aid ID for electronic signature (this is your username and password needed to access and submit your FAFSA online)
If you are applying as a dependent student, you will need all of the above information from your parent(s) as well.
What Is the Difference Between Unsubsidized and Subsidized Loans?
There are two primary types of federal student loans: subsidized loans and unsubsidized loans. The main difference between unsubsidized and subsidized loans is how the interest accumulates throughout the life of the loan.
Unsubsidized loans are available to undergraduate and graduate students, regardless of any financial need. An unsubsidized loan starts accruing interest as soon as the loan is disbursed. That means if you accept an unsubsidized loan during your freshman year of college, the loan will accumulate interest throughout the rest of your time in school.
You are responsible for starting to pay back an unsubsidized loan six months after you graduate or if you drop below half-time enrollment. Because of the interest capitalizing on your unsubsidized loan from the day it’s disbursed, your loan balance will likely be more than the amount you originally borrowed if you don’t make interest payments while you’re in school.
A subsidized loan, on the other hand, is a need-based loan available to undergraduate students on which interest accumulates only after you begin repayment. The government will pay the interest while you’re in school at least half-time or until you graduate and for the first six months after, as well as during a period of deferment.
Like unsubsidized loans, repayment for a subsidized loan typically occurs after a six-month grace period from when you graduate or drop below half-time enrollment. You are responsible for paying back the total outstanding balance, plus interest. There are plenty of ways to pay off federal loans, from the standard 10-year repayment plan to income-based repayment plans.
Pros and Cons of Loans
Pros of student loans include:
• Access to education: Loans enable students to attend college who otherwise might not be able to afford it.
• Flexible repayment options: Federal student loans offer flexible repayment options, including income-based repayment plans.
• Credit building: Paying back student loans on time each month can help establish and build credit history.
• Fixed interest rates: Federal student loans (and some private student loans) offer fixed interest rates, making monthly payments predictable each month.
Cons of student loans include:
• Debt burden: Student loans increase debt load and debt-to-income ratio, which can lead to financial strain and/or make it hard to qualify for other loans in the future.
• Interest accumulation: Interest starts accumulating immediately on unsubsidized loans and private loans. This increases the total amount to be repaid.
• Stress and anxiety: Debt of any kind, including student loans, can cause significant stress and anxiety, which could impact your overall well-being.
What Is a College Grant?
A grant can be beneficial to students because it’s financial aid that does not have to be repaid. That’s the main difference between a grant and a loan. Grants may be obtained directly from your university, the federal government, state government, or a private or nonprofit organization. It’s important to note that you may be required to meet certain financial eligibility criteria, depending on the grant.
When it comes to grants vs. scholarships, grants are typically awarded based on need rather than academic achievement or merit. Scholarships are based on merit.
One popular type of college grant is the Pell Grant. Pell Grants are given to undergraduate students with significant financial need, which means they’re typically awarded to low-income students.
Do You Have to Pay Back Grants?
In most cases, you don’t need to pay back your grant as long as you maintain eligibility. If, for example, you decide to drop out of school, you might be required to pay back certain grants.
You might also need to pay back your grant if you withdraw early from a program for which the grant was awarded, or if you did not meet a service obligation, as is required for the Teacher Education Assistance for College and Higher Education (or TEACH) Grant, for example.
How to Apply for Grants
To apply for grants, start by researching and identifying grants for which you qualify, focusing on those specific to your field of study, background, or needs. Visit the official websites of grant providers, such as federal and state governments, educational institutions, and private organizations, and carefully review their eligibility requirements and application deadlines. Prepare all necessary documents, which may include academic transcripts, letters of recommendation, a personal statement, and financial information.
Also, you’ll need to fill out the FAFSA if you are in the United States, as it’s often required for federal and state grants.
Pros and Cons of Grants
Pros of grants include:
• No repayment required: Grants are essentially free money that does not need to be repaid, making them highly beneficial for students.
• Financial relief: Grants provide significant financial assistance, reducing the amount of student loans needed and easing the financial burden of education.
• Encouragement for academic excellence: Some grants are merit-based, encouraging students to maintain high academic performance.
Cons of grants include:
• High competition: Grants are often limited in number and highly sought after, making them difficult to obtain.
• Strict eligibility requirements: Many grants have specific criteria that must be met, which can exclude a significant number of applicants.
What’s a Scholarship?
Scholarships are a great way to finance higher education, simply because there are thousands available based on financial need or merit. That’s the main difference between a scholarship and a grant: Scholarships are typically merit-based. They can come from a variety of sources and typically don’t need to be repaid.
How to Apply for Scholarships
It can be easy to feel overwhelmed by the time it takes to hunt for scholarships — here are a few tips to help you:
• Start by combing scholarship databases for any scholarship that may align with your interests or background. Don’t be afraid to tell people you know that you are looking for scholarships, either — your best friend or neighbor may have heard of a scholarship you could be eligible for.
• Take a look at your academic achievements. Have you maintained a certain GPA, or did you make the Dean’s List? There could be a scholarship for that. List out your community involvements and start researching whether your softball league, for example, offers scholarships.
• Make a list of all the things that make you who you are. List out your heritage and things that your family members have been involved with over time. Perhaps your grandmother belongs to the National Corvette Club, or your grandfather was a veteran, both of which could present scholarship opportunities.
Once you have your list, it helps to stay organized by adhering to deadlines and application requirements. Stick to what feels doable so you can knock out several applications in a row. Scholarship application formats vary from essay writing to creating a video to simply filling out a form.
Important documents you might need when applying for scholarships include birth certificates, SAT/ACT scores, academic transcripts, certifications, or ID cards. Be sure you have those handy when hitting search engines and applying for the next available scholarship you find.
Pros and Cons of Scholarships
Pros of scholarships include:
• No repayment needed: Scholarships provide financial assistance that doesn’t need to be repaid, reducing the overall cost of education.
• Merit recognition: They’re typically awarded based on academic, athletic, or other achievements, recognizing and rewarding students for their talents and hard work.
• Resume boost: Being awarded a scholarship can enhance your resume, showcasing your achievements and dedication.
• Encouragement for academic excellence: Scholarships can incentivize you to maintain high academic standards and strive for excellence in your endeavors.
Cons of scholarships include:
• High competition: Scholarships can be very competitive, with many applicants vying for a limited number of awards.
• Strict criteria to qualify: Strict eligibility criteria may exclude many students from qualifying for certain scholarships.
Grants vs Scholarships vs Loans
Now that you have a grasp on all three forms of financial aid, let’s examine the main difference between scholarships, grants, and student loans.
What’s the Difference Between a Loan and a Grant?
Here’s what makes grants and loans different: A student loan — whether it’s unsubsidized or subsidized, federal or private — must be repaid with interest. A grant typically does not need to be repaid as long as you maintain eligibility requirements.
What’s the Difference Between a Grant and a Scholarship?
The primary difference between a grant and a scholarship is that grants are typically need-based, while scholarships are usually merit-based. You might receive a scholarship for a variety of reasons, such as high academic achievement, involvement in organizations or clubs, or ancestry. A grant is typically awarded based on financial need and can be specific to certain degrees, students, and programs.
How Is a Student Loan Different from a Scholarship?
A student loan is different from a scholarship primarily in that a student loan needs to be repaid, whereas a scholarship does not. Scholarships can come from a variety of sources, including nonprofit organizations, private companies, universities and colleges, and professional and social organizations. Student loans may come from private lenders, federal or state governments, or colleges and universities.
There are two types of student loans: federal and private. Federal student loans should be sought first, as they typically come with better interest rates and borrower protections, such as income-driven repayment plans and student loan deferment. Private student loans can help fill gaps left by federal loans, grants, and scholarships.
When we say no required fees we mean it.
No late fees, & insufficient fund
fees when you take out a student loan with SoFi.
The Takeaway
With a good understanding of scholarships vs. grants vs. student loans under your belt, you can better determine which form of financial aid is right for your situation. Remember that you don’t have to choose just one.
Once you’ve maximized the money you can get from grants or scholarships that you likely won’t have to pay back, you may consider bridging the remaining gap by taking out a student loan.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
What’s the difference between a grant, a scholarship, and a student loan?
Grants and scholarships don’t need to be repaid, while student loans must be repaid with interest. Grants are typically need-based, scholarships are usually merit-based, and loans are borrowed funds that require repayment.
Do you have to pay back grants or scholarships?
In most cases, grants and scholarships don’t need to be repaid. However, certain grants may need to be repaid if eligibility requirements aren’t met, such as withdrawing early from a program or failing to meet a service obligation.
What’s the difference between subsidized and unsubsidized student loans?
Subsidized loans are need-based, and the government pays the interest while you’re in school at least half-time and during certain other periods. Unsubsidized loans aren’t based on financial need, and interest begins accruing as soon as the loan is disbursed.
Do you need to fill out the FAFSA to apply for financial aid?
Yes. The FAFSA is required to apply for most federal financial aid, including federal grants and student loans. Many states and colleges also use FAFSA information to determine aid eligibility.
Should you accept loans before grants and scholarships?
Generally, it’s recommended to prioritize grants and scholarships, since they typically don’t need to be repaid. Student loans can then be used to cover any remaining education costs.
SoFi Private Student Loans
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Not all repayment options may be available for all loans. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is current as of 3/2/2026 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOISL-Q126-028