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Figuring out how to pay for school can be stressful, especially when tuition and other education costs add up quickly. Understanding financial aid vs. student loans can help you identify funding options that may reduce how much you need to pay out of pocket or borrow.
Financial aid is a broad term that includes grants, scholarships, work-study funds, and student loans. When financial aid that doesn’t need to be repaid isn’t enough to cover your education costs, you may consider federal student loans. If there’s still a funding gap, private student loans from banks, credit unions, and online lenders may be another option.
Below, we take a closer look at financial aid vs. student loans, how the FAFSA® fits into the process, and the similarities and differences between these ways of paying for college.
Key Points
• Financial aid is an overarching category that includes grants, scholarships, work-study programs, and student loans.
• Unlike grants and scholarships, student loans are borrowed funds that must generally be repaid with interest.
• Submitting the FAFSA helps determine your eligibility for federal grants, work-study, and federal student loans.
• Federal student loans offer fixed rates and federal protections, while private student loans are credit-based and governed by individual lenders.
• A financial aid package may blend gift aid, work opportunities, and loans to help cover your total cost of attendance.
What Is Financial Aid?
Financial aid is money or other assistance that helps students and families pay for college, career school, or graduate school. It can come from the federal or state government, a college or university, or private organizations.
Financial aid may help cover eligible education expenses such as tuition, fees, room and board, books, supplies, and transportation. The types and amounts of aid you may qualify for depend on factors such as financial need, academic or other qualifications, school policies, and the source of the aid.
The Free Application for Federal Student Aid (FAFSA®) is the starting point for federal student aid. Many states and schools also use FAFSA information when determining eligibility for their own aid programs. You generally need to complete the FAFSA each year you want to be considered for federal student aid.
There are several main types of financial aid:
• Scholarships: Scholarships are a form of financial aid that generally doesn’t need to be repaid. Schools, employers, companies, nonprofit organizations, and other private groups may award scholarships based on factors such as academic achievement, athletic ability, talents, community involvement, field of study, or financial need.
• Grants: Grants generally don’t have to be repaid and are often based on financial need. Federal grants include the Pell Grant, which can provide up to $7,395 for the 2026–27 award year, subject to eligibility requirements.
• Federal Work-Study: The Federal Work-Study Program provides eligible students with part-time jobs so they can earn money to help pay for education expenses. Work-study funds aren’t simply paid upfront; students generally need to find and work an eligible job to earn the money.
• Student loans: Student loans are borrowed money that must generally be repaid with interest. Federal student loans are offered through the U.S. Department of Education, while private student loans are offered by private lenders.
Is Financial Aid a Loan?
No. Financial aid is a broad category that includes several ways to help pay for school, and student loans are just one type of financial aid.
Some financial aid, such as grants and scholarships, generally doesn’t have to be repaid. Federal Work-Study allows eligible students to earn money through part-time employment. Student loans, on the other hand, are borrowed money that must generally be repaid with interest.
For example, a college’s financial aid offer might include a Pell Grant, a scholarship, Federal Work-Study, and a federal student loan. The grant and scholarship generally don’t have to be repaid, while the loan does.
What Are Student Loans?
Student loans are money borrowed from the federal government or a private lender to help pay for education expenses. Unlike grants and scholarships, student loans generally must be repaid, along with interest that accrues according to the terms of the loan.
Student loans can typically be used for eligible education-related expenses, such as tuition, fees, room and board, books, supplies, and other costs included in a school’s cost of attendance.
There are two main categories of student loans: federal and private. It’s important to understand how they differ before deciding whether borrowing is necessary.
Federal Student Loans
Federal student loans are offered through the U.S. Department of Education. They generally offer fixed interest rates and certain borrower protections and repayment options that aren’t available with private student loans.
Students need to complete the FAFSA each year to be considered for federal student loans. A school’s financial aid office uses FAFSA information, along with other information, to determine the federal aid a student may be eligible to receive and to put together the school’s financial aid offer.
Federal Direct Loan programs include:
• Direct Subsidized Loans: These loans are available to eligible undergraduate students with financial need. The federal government generally pays the interest while the borrower is enrolled at least half-time and during the six-month grace period after leaving school.
• Direct Unsubsidized Loans: These loans are available to eligible undergraduate, graduate, and professional students. Financial need isn’t required, but the borrower is responsible for interest that accrues while the loan is outstanding.
• Direct PLUS Loans: Parent PLUS Loans are available to eligible parents of dependent undergraduate students. As of July 1, 2026, new graduate and professional students can generally no longer receive Direct PLUS Loans, although borrowers who meet a limited exception may remain eligible.
• Direct Consolidation Loans: These loans allow eligible federal student loan borrowers to combine multiple federal student loans into one Direct Consolidation Loan with a single monthly payment. The interest rate is generally a weighted average of the interest rates on the loans being consolidated.
Private Student Loans
Students can also use private student loans to help cover college costs. These loans are offered by banks, credit unions, and online lenders.
Private student loans can help fill a gap when scholarships, grants, other financial aid, and federal student loans don’t cover all eligible education expenses. Unlike federal student loans, private lenders set their own eligibility requirements, interest rates, fees, repayment terms, and other loan conditions.
Private student loans are typically credit-based. A lender may consider factors such as your credit history, income, debt, and enrollment status. Students with limited credit histories may need a cosigner to qualify or receive a lower interest rate.
Private student loans generally don’t offer the same federal borrower protections and repayment options as federal student loans, so it’s important to compare them carefully with federal options before borrowing.
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Financial Aid vs Student Loans Compared
Student loans are a type of financial aid, but financial aid includes much more than loans. This distinction is important when comparing your options for paying for school.
Grants and scholarships generally don’t have to be repaid, while student loans generally do. Work-study isn’t a loan or a grant; instead, it allows eligible students to earn money through a part-time job.
Similarities
Financial aid and student loans have several things in common:
• Both can help cover education costs: Financial aid and student loans can help pay eligible expenses such as tuition, fees, books, supplies, room and board, and other costs included in your school’s cost of attendance.
• Both can be part of a financial aid offer: A school’s financial aid offer may include grants, scholarships, work-study funds, and student loans.
• FAFSA can play an important role: The FAFSA is used to determine eligibility for federal student aid and is also used by many states and schools when awarding their own financial aid.
• Eligibility requirements apply: Different types of aid have different requirements. For example, grants may be based on financial need, scholarships may be based on merit or other criteria, and private student loans typically consider credit and income.
Differences
The biggest difference between financial aid and student loans is that financial aid is a broad category, while student loans are a specific type of aid that creates a debt that generally must be repaid.
Here are some other key differences:
| Financial Aid | Student Loans | |
|---|---|---|
| What it includes | Grants, scholarships, work-study, and student loans | Federal and private education loans |
| Repayment | Depends on the type. Grants and scholarships generally don’t need to be repaid; work-study is earned through employment | Generally must be repaid, plus interest |
| Eligibility | May be based on financial need, merit, school requirements, or other criteria | Federal loans have federal eligibility requirements; private loans generally consider credit, income, and other lender requirements |
| FAFSA | Required for federal aid and used by many states and schools | Required to be considered for federal student loans |
| Debt | Grants, scholarships, and work-study generally don’t create debt | Creates a debt obligation that must generally be repaid |
| Sources | Federal and state governments, schools, and private organizations | Federal government, banks, credit unions, and other private lenders |
Pros and Cons of Financial Aid
Financial aid can make college more affordable, particularly when you qualify for grants and scholarships that don’t have to be repaid. However, the amount and type of aid available can vary, and not all financial aid reduces your costs in the same way.
Pros of Financial Aid
• Can reduce borrowing: Grants and scholarships can help cover education costs without creating student loan debt.
• Multiple options: Financial aid can include grants, scholarships, work-study, and loans, giving students several ways to help pay for school.
• May be based on need or merit: Depending on the program, you may qualify based on financial need, academic achievement, talents, or other criteria.
• Can come from different sources: Federal and state governments, colleges, nonprofit organizations, employers, and other private groups may offer financial aid.
Cons of Financial Aid
• May not cover the full cost: Financial aid may fall short of your school’s total cost of attendance.
• Eligibility varies: Each type of aid has its own eligibility requirements, and some programs have limited funding.
• Some aid requires work: Federal Work-Study funds require you to work an eligible job to earn the money.
• Some aid creates debt: Student loans are financial aid, but they generally must be repaid with interest.
Pros and Cons of Student Loans
Student loans can help students cover education costs when other sources of financial aid and available funds aren’t enough. But borrowing creates a repayment obligation, so it’s important to understand the costs and terms before taking out a loan.
Pros of Student Loans
• Can fill funding gaps: Student loans can help cover eligible education expenses after other sources of funding are considered.
• Federal options offer protections: Federal student loans generally offer borrower protections and repayment options that private loans don’t provide.
• No immediate full repayment: Student loans allow you to spread repayment over time rather than paying the full costs at the start of each semester.
• Can help cover a range of costs: Loan funds can generally be used for eligible expenses included in your school’s cost of attendance.
Cons of Student Loans
• Must generally be repaid: Borrowed money must typically be repaid, even if your financial circumstances change.
• Interest adds to the cost: Interest can increase the total amount you repay over the life of the loan.
• Can create long-term debt: Student loan payments can affect your budget for years after you leave school.
• Private loans may offer fewer protections: Private student loans generally don’t provide the same federal repayment options and borrower protections as federal loans.
The Takeaway
Financial aid is an umbrella term for various funding options, while student loans are just one specific type. Grants and scholarships generally do not require repayment, whereas student loans must be paid back with interest, and work-study lets eligible students earn funds through part-time work. Submitting the FAFSA can help you determine whether you qualify for federal aid and may also help you access state and school aid. If you need to borrow, you’ll want to compare federal student loans with private options and understand the repayment terms before taking on debt.
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
Is FAFSA a loan?
No. The Free Application for Federal Student Aid (FAFSA®) is an application used to determine whether you may qualify for federal financial aid. It isn’t a loan and doesn’t provide money by itself. Depending on your eligibility, completing the FAFSA may help you qualify for grants, work-study, federal student loans, and other forms of financial aid. Many states and colleges also use FAFSA information when determining eligibility for their own financial aid programs.
Does FAFSA loan or grant money?
The Free Application for Federal Student Aid (FAFSA®) doesn’t loan or grant money itself. It’s an application used to determine your eligibility for federal student aid. Based on your FAFSA information and other eligibility requirements, you may qualify for grants, federal student loans, work-study, or other aid. Your school typically sends you a financial aid offer explaining the types and amounts of aid available to you.
Can you get financial aid and student loans at the same time?
Yes. Student loans are one type of financial aid, so you can receive student loans along with other forms of financial aid. For example, your financial aid offer could include a Pell Grant, a scholarship, Federal Work-Study, and federal student loans. Grants and scholarships generally don’t need to be repaid, while student loans typically must be repaid with interest.
Do scholarships count as financial aid?
Yes. Scholarships are a type of financial aid. They may come from colleges, private organizations, employers, nonprofits, or other sources and can be awarded based on factors such as academic achievement, athletic ability, financial need, talents, or field of study. Scholarships generally don’t need to be repaid, although some may have conditions that require repayment if you don’t meet their requirements.
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