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The Differences Between Grants, Scholarships, and Loans

March 06, 2019 · 6 minute read

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The Differences Between Grants, Scholarships, and Loans

Do you know the difference between grants, scholarships, and loans? It’s enough to make any hopeful college-bound student’s head spin. With student loan debt averages creeping near $40,000 for an undergraduate degree, students are looking into every available resource to finance their education. And when they’re looking, they’ll probably have questions like these:

•  Do you have to pay back grants?

•  What is a college grant?

•  What’s the difference between a grant and a scholarship?

•  How do grants work?

•  How is a student loan different from a scholarship?

Here’s a breakdown of student loans, grants, and scholarships, and some of the key differences between all three.

Student Loans

Very simply put, a loan is money borrowed that has to be paid back (usually with interest). You can take out a loan from a friend, a family member, a bank, an online lender, a college or university, or the state or federal government. 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 Free Application for Federal Student Aid (FAFSA) as well.

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.

In order 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 are not a U.S. citizen)

•  Federal income tax returns, W-2s, and other records of money earned

•  Bank statements and records

•  Records of untaxed income (if applicable)

•  FSA 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 actually two primary types of federal student loans—unsubsidized loans or subsidized loans . The main difference between unsubsidized and subsidized loans is how the interest accumulates through the life of the loan.

What Is an Unsubsidized 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 dispersed .

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. Ultimately, that means the interest will capitalize—in other words it will be added onto the principal of your student loan.

When Do I Need to Pay Back an Unsubsidized Loan?

You are responsible for starting to pay back an unsubsidized loan six months from when you graduate or 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 what you originally borrowed if you don’t make interest payments while you’re in school.

What Is a Subsidized Loan?

A subsidized loan is a need-based loan 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.

When Do I Need to Pay Back a Subsidized Loan?

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 , of course, from the standard 10-year repayment plan to income-based repayment plans.


A grant can be beneficial to students because it is financial aid that does not have to be repaid. Grants may be obtained directly from your university, the federal government, state government, or a private or nonprofit organization. It is important to note that you may be required to meet certain financial eligibility criteria, depending on the grant.

What Is a College Grant?

A college grant is financial aid money awarded to a student that does not have to be paid back. Grants are typically awarded based on need, not on academic achievement or merit. One popular type of college grant is the Pell Grant . Pell Grants are given to students with significant financial need, which means they are typically awarded to low-income students.

Do You Have to Pay Back Grants?

In most cases, you do not need to pay back grants 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 grants if you withdraw early from a program in 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 Grant , for example.


Scholarships are a great way to finance higher education, simply because there are thousands of available scholarships based on financial need or merit. Scholarships can come from a variety of sources and typically do not need to be repaid. It can be easy to feel overwhelmed with the amount of time it takes to hunt for scholarships—here are a few tips to help grab all that free money from scholarships.

You can start by combing scholarship databases for any scholarship that may align with your interests or background. And don’t be afraid to tell people you know that you are looking for scholarships. Your best friend, neighbor, or even your crazy uncle may have heard of a scholarship that 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 have been involved with over time. Perhaps your grandmother belongs to the National Corvette Club or your grandfather was a veteran .

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 prior to hitting search engines and applying for the next available scholarship you find.

Grants vs. Scholarships vs. Loans

Now that you have a grasp on all three forms of financial aid, let’s examine the main differences between grants, scholarships, and loans.

What Is the Difference Between a Loan and a Grant?

A loan, whether it is 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 Is the Difference Between a Grant and a Scholarship?

The primary difference between a grant and a scholarship is that a grant is typically need-based while a scholarship is typically merit-based. You might receive a scholarship for a number of things—high academic achievement, organization or club involvement, 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 must be repaid and a scholarship does not need to be repaid. 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.

Whew! That’s a lot of information. But hopefully armed with this knowledge, you’ll be able to more efficiently figure out how to pay for college.

We want to help you focus on your degree, not your debt. Our mission is to help students get low-rate loans they can pay back on their own terms. Learn more.

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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.


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