One of the most common questions I’m asked by high school students who are looking at college options, as well as by their parents, is whether it’s worth taking out student loans to pay for tuition and fees.
A common misconception about student loans is that they’re different from scholarships, but this simply isn’t true.
Scholarships and student loans are both forms of financial aid, just like grants and work-study programs.
But what exactly do student loans and scholarships have in common? And what makes them different?
How is a student loan different from a scholarship
What is a scholarship?
Before we can talk about how a student loan is different from a scholarship, it’s important to understand what both of them are.
A scholarship is an award that you get for either academic or athletic achievement, and getting one doesn’t mean you have to pay it back.
If you received any amount of money on your way to graduation, even if it was just $250 in work-study, that was most likely considered a scholarship.
And yes, loans qualify too—but we don’t recommend borrowing money as part of your education plan!
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What is a student loan?
The differences between scholarships and loans depend on what type of financial aid they represent.
Scholarships are never repaid, while loans generally require you to pay them back (with interest).
Loans can be divided into two general categories: federal and private.
Federal loans are available to all students who are eligible for financial aid, regardless of their academic performance or how much money their parents make.
They tend to offer lower interest rates than private loans do. Private loans may also have very low-interest rates—or they may not, depending on your credit history and current finances.
For that reason, it’s important to read both sets of fine print carefully before agreeing to any terms with your lender or lending institution.
Types of scholarships.
Scholarships are often divided into three types: competitive, non-competitive, and merit-based.
These types differ based on how applications are evaluated. Scholarships that require an application or essay tend to be competitive; recipients of these scholarships must compete against other applicants to receive them.
The next most common type of scholarship, called non-competitive, is awarded without any competition at all.
Recipients of these awards do not have to apply for them, but they do have to meet certain eligibility requirements (for example, minimum GPA requirements).
Finally, merit-based scholarships are given based on academic achievement. While some schools award their own institutional merit-based scholarships, many students can also earn national awards by meeting specific criteria set by organizations like Phi Theta Kappa (PTK) and the National Merit Scholarship Corporation (NMSC).
For example, students who qualify for Phi Theta Kappa’s Honor Society automatically become eligible for over $10 million in annual scholarship funding through its partnership with NMSC.
Recipients of both types of national awards must apply through their high school’s PTK chapter advisor or directly through NMSC.
Types of student loans
There are two primary types of loans available for students: federal and private.
Federal loans come with fixed interest rates, which means your interest rate will not change regardless of how much time has passed since you first took out your loan or what happens to rates during that time.
Private loans do not have fixed interest rates, meaning that as market interest rates change over time, so does your rate.
Many lenders offer both types; check with your lender to determine which type they offer and make sure you understand whether your rate will be fixed or variable.
Your choice can have major implications for how much money you pay in interest over time. How is a student loan different from a scholarship? Scholarships aren’t considered debt because there’s no expectation of repayment (unless it’s an athletic scholarship).
If you decide to accept a full-ride academic scholarship at Harvard University, then Harvard isn’t expecting any payment beyond your attendance.
The same goes for many other scholarships: They are gifts designed to help offset some of your educational expenses without requiring repayment.
Moreover, scholarships often don’t require any paperwork or follow-up action on your part—they are simply awarded based on merit and financial need.
In contrast, student loans always require some level of paperwork before being disbursed.
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How to get a scholarship
Many students don’t realize how easy it can be to get a scholarship—and that these scholarships may come with a lot less work than you’d expect.
Occasionally, all you need to do is apply for an easy scholarship like one offered by your school, library, or community organization.
At other times, universities may even manage their scholarship searches for students on their website. You might be surprised at just how little you have to do to secure money for school.
If nothing else, applying for scholarships can help take some stress out of financing your education—and give you a fun project to do while waiting on that acceptance letter!
Another good way to fund your education is through student loans. However, these are not grants or scholarships; they are loans, which means you will need to pay them back once you graduate (and begin earning).
Student loans can cover everything from tuition costs to housing expenses, but because they are only repaid after graduation, there is always some risk involved.
Student loans also typically carry higher interest rates than other types of debt—but depending on how much money you’re borrowing and what type of loan it is (federal vs. private), those rates may still be more manageable than taking out credit card debt.
The bottom line: don’t rule out student loans as a potential source of funding without first doing thorough research.
How to get a student loan
Before getting started, it’s important to clarify that in today’s world, there are two types of loans: scholarships and student loans.
If you’re asking how to get a scholarship, keep in mind that there isn’t really any such things as scholarships anymore; nowadays, scholarships are just like any other type of loan—except they don’t come with an interest rate.
So, when we talk about how to get a scholarship, we mean how you can earn one (in exchange for some type of service or achievement).
On the other hand, if you’re asking how to get a student loan, that’s much easier! All you have to do is fill out a FAFSA form, apply for financial aid at your school of choice, and wait for your loan money to arrive. It’s that simple!
Conclusion How Is a Student Loan Different From a Scholarship?
The Difference Between Student Loans and Scholarships: Student loans and scholarships are two very common forms of financial aid.
There are many similarities between them, but there are also many differences.
We’ll take a look at some of those differences below.
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Both scholarships and student loans will pay for your education in one way or another, but they work differently in many ways.
Scholarships generally don’t have to be paid back because they typically come with specific requirements regarding how they must be used, while student loans come with debt that must be repaid after graduation with interest.
Scholarship amounts can also vary greatly—and applying for them can be simple! But before you get too excited about how much money you could receive from a scholarship, make sure you understand how these awards differ from federal student loans.
Federal student loans are more flexible than private ones when it comes to repayment options.
Federal student loans also offer income-driven repayment plans if your income falls below certain thresholds.
Private lenders may not offer these types of options as readily as federal lenders do.
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