How Is a Student Loan Different From a Scholarship?

How Is a Student Loan Different From a Scholarship?

Every year millions of Americans apply and get accepted to the college of their dreams. They may not necessarily have the ability to pay for tuition at their dream college, and that’s where student loans are of great help. The greatest difficulty for students pursuing a college degree is how they’re going to be financing it.

Acceptance into colleges and universities is not as difficult for Americans as it is coming to terms with the fact that they’ll be graduating with crushing debt. Anticipating debt can change many people’s minds as they swear off college and getting a formal education in a discipline of their choice.

However, most college students opt for student loans to help better their careers and put them on track for a better lifestyle. College is a holistic experience in itself, and there are many options that one can avail to ensure that they get to be a part of this wild ride.

The two main ways that a college student can afford college is through financial aid or financial assistance, i.e., is if they apply for student loans or get a scholarship which begets the question, how is a student loan different from a scholarship?

What is a student loan?

A student loan is a loan that allows students to afford post-secondary education. Student loans cover tuition, books, and even living expenses for their college campus. If a student applies for financial aid, they are likely to get a student loan. It is always advisable to look for financial aid in the form of scholarships or grants before indulging in student loans, but if none of these apply to you, then student loans are the way to go.

A student loan needs to be repaid once the student starts earning. This loan can seem unattractive to people as they’re graduating into debt, and it limits options in the hurt to repay debts. However, student loans are a major way most people can afford a college degree.

What is a scholarship?

Scholarships are financial awards that help students fund their studies in their secondary education. They don’t need to be paid back. There are many different types of scholarships, but they’re mainly given to students who nurture promising talent in academics or sports. Scholarships are granted by the scholarship committee of the university the student applies to.

Photo of woman reading books

Do scholarships affect student loans?

Scholarships affect student loans; if a student applies for a scholarship and receives one, their student loan will decrease. Since scholarships don’t need to be repaid, the student debt also decreases, and thus, you should always check out what scholarships your school is offering because this is a big advantage and will mean that it’ll take you a shorter time to clear your student debts.

How do student loans work?

Now that we know about our major options, we can learn about how student loans work.

Students can apply for federal student loans in America by filling out a Free Application for Federal Student Aid (FAFSA). For this form, you need to provide details regarding the students’ and their guardian’s financial information, which is then sent to the schools that the students have applied to.

The financial aid office at this school then evaluates the student’s profile and comes up with the aid, scholarships, and grants that the student is applying for. They then provide all of this information in an award letter. Sometimes, if the profile is really good, the student might not need to take any loans.

Another way that a student can apply for loans is by using private vendors that offer private student loans. These include companies like Navient, Nelnet, and ECSI.

Regardless of the nature of the loans, students then have to sign a promissory note in which they promise to repay their student loans with the addition of any interest that it would have gained in that period.

The two main types of student loans could thus be Federal and private. However, there are categories within categories, and we’ll investigate more of that later on.

Newly graduated people wearing academy gowns throwing hats in the air

How is a student loan different from a scholarship?

Student loans and scholarships both involve the lending of money for your secondary education. However, there are many major ways in which they differ. Their differences are listed below:


When you take out a loan, there is an expectation that you will pay the money back. In scholarships, the committee grants these scholarships for free because they deem you entitled to that money. Grants are also like scholarships, but they generally don’t have conditions. It provides “free” money that a foundation or person is giving away generously.


You need to be eligible to receive a scholarship. Some scholarships are merit-based, while others are need-based. There are requirements you need to fill and complete to be considered for these scholarships. Student loans are pretty much provided to everyone. They need to have your financial information for these, but that’s pretty much the only criteria along with the acceptance letter of the college you apply for.


Loans are more accessible than scholarships; this means that anyone can apply or get access to loans. There are certain eligibility criteria for loans too. However, this criteria has more to do with financial information, which is mostly achievable rather than academic or sports prowess.

Therefore these are the major difference between loans and scholarships. If you’re a student who thinks they can potentially get a scholarship, you should apply for one. If a scholarship doesn’t work out, loans are always a great option to fall back on to fund your studies.

Pros and cons of financial aid


We’ve already established that student loans are money borrowed from different companies. However, there are pros and cons to each option.


It may not be enjoyable to owe a company a huge amount of money. However, student loans help establish a credit score and help with credit cards and getting loans in the future.


You won’t just have to pay back the money that you borrow; you also have to back interest on top of that. Moreover, loans always come with the additional mental stress of owing a great amount of money.


A scholarship provides money without any stipulation regarding repayment, but it has its advantages and drawback.


They don’t need to be paid back and can be used in addition to loans, which means that you’ll have to pay back less money even if you require loans. These can be of great help in your college education, and therefore, you should invest in these.


These are sometimes very difficult to get as they are conditional. Scholarships aren’t freely available to everyone and may require you to maintain a certain GPA or other conditions to keep on receiving it. If you drop classes or something goes awry, your scholarship may even be stooped, and so it’s rather conditional.

Woman in pink holding pen and writing on white paper

Different types of student loans

There is a lot of variety when it comes to student loans. We’ve mentioned some of the major categories earlier; however, there are categories nested within categories.

You should be aware of these before you decide which loan you’re going to opt for.

he two main types of student loans are federal student loans and private student loans. The government grants federal loans, and private loans can be issued by private companies like banks, schools, companies, etc.

Federal loans

Direct subsidized loan

These loans are provided to undergraduate students who have a financial need and mention it on their FAFSA. The government pays the entire loan until it’s time for you to pay it back; the government also pays any interest. Once the student has graduated or a certain grace period has passed, the repayment starts, and the interest will start being levied on the payment. This option may seem better because there is some respite in the form of reduced interest.

Direct unsubsidized loan

This kind of federal student loan is given to students that don’t have a financial need. With these kinds of loans, the government doesn’t cover interest payments, and the interest starts getting levied when the school receives the loan. These aren’t as easy to pay back because of the interest factor.

Direct plus student loans

Students and their parents can take out this federal student loan for their education. These require a separate application that needs to be submitted to FAFSA along with a credit check to ensure that the applicant can return this student loan.

Private student loans

Private loans are loans offered by any private company. These loans are generally higher and have a greater degree of return interest that students will need to pay.

The students also need to start making monthly payments to private loan vendors while they’re still in school and so they can cause some mental stress for students while they’re still studying.

The lender can decide all the terms and conditions of the loans, and the student has to pay back all of the money themselves without using any of the government’s help. This move is quite risky as it allows many companies to take advantage of the students who require their help.

Different types of scholarships

Scholarships can be granted to different students for different reasons. The rule with applying to scholarships is that you should apply to them often and early. There are many types of scholarships prevalent in the United States of America. Some of them are listed below:

  • Academic scholarships
  • Community service scholarships
  • Athletic scholarships
  • Scholarships for hobbies and extracurriculars
  • Scholarships based on applicants’ identities
  • Need-based scholarships
  • Employer scholarships and military scholarships
Payroll clerk counting money while sitting on the table

Academic scholarships

As the name suggests, academic scholarships are for students who show a great degree of academic excellence. These scholarships are given to students with a great point average, great recommendation, and above-average standardized test scores. Academic scholarships are a kind of merit-based scholarship. To get these scholarships, students generally have to write an essay detailing the performances and factors that make them stand out.

Community service scholarships

These scholarships are granted to students who have an outstanding repertoire of community service. These scholarships are maintained for students who have volunteered to better their communities. Some volunteer organizations have scholarships specifically for volunteers who can’t afford secondary education; so, you should look around for them.

Athletic scholarships

Colleges and universities award athletic scholarships to students they think might be an asset to their football or basketball teams. These scholarships are generally given to students who play teams sports and are notable at them. These scholarships are very common in the United States of America but are virtually non-existent in other parts of the world.

However, the athletes need to maintain a minimum grade point average to continue playing for their teams. In most cases, this GPA is 2.2 or 2.3. Athletic scholarships are regulated largely by the National Collegiate Athletic Association (NCAA). They’re another way that students who are not academically gifted can afford to go to the college of their choice.

Scholarships for hobbies and extracurriculars

These are scholarships that are for students whose talents aren’t academic nor athletic. These scholarships are generally awarded by companies that want to hone hobbies and extracurriculars, such as musical theatre and culinary arts. Such scholarships are more difficult to come by, but they still exist, and you can apply to them and get selected. Many companies grant scholarships based on their entries to contests, like a telecommunication project or a video project.

Identity-based scholarships

These are scholarships that have their mission to increase inclusion and diversity amongst the population of college-goers in America. There are special scholarships for Hispanic and African-American students to ensure that factors like money do not dissuade those who wish to pursue higher education.

They don’t just provide scholarship money; many of these organizations provide seminars on leadership and other community help to get them started on higher education and then eventually a career in which they can become proponents of change within their community.

These scholarships also often require a minimum grade point average for the students to be eligible, but it’s a reasonable GPA of about 2.5. Identity-based scholarships are not just based on race; there are scholarships for LBTQIA+ students struggling and cannot finance themselves, and scholarships available for disabled students who require additional help. The idea behind identity-based scholarships is to bring more diversity to the college classroom.

Furthermore, some organizations provide scholarships for undocumented students to gain their secondary education in America. These organizations also aid women and international students.

Need-based scholarships

As the name suggests, these are for students in need who cannot afford to go to college under any circumstances. It is financial aid given due to financial needs. Students who apply for these scholarships need to meet certain criteria for the scholarship.

The qualification is generally based on family income. Family income is not the only criterion; there are other lists of qualities that you must fulfill to be eligible for a need-based scholarship. Many organizations providing need-based scholarships need to see that the student is also performing well athletically or academically.

Employer scholarships and military scholarships

Employer scholarships are provided by the company that you might work for, or your parent is working for. Even if you’re only working part-time, many companies have scholarships for their employees to benefit from. There are conditions for these scholarships, and you should thoroughly go through these before you opt for this option.

In the United States of America, all active or future military personnel, veterans and relatives or dependents of military personnel and veterans are eligible to receive financial aid via scholarships for a college education managed by the federal government, through the FAFSA, individual military branches, or even several supporting non-governmental organizations.

It’s important to remember that these military scholarships, except for some FAFSA scholarships, are benefits for military employees. All students who accept these scholarships will be expected to complete their service contracts after graduation.

There may be certain subjects that these scholarships are aiming for, and if you wish to pursue a future in these subjects, you are eligible to apply and be evaluated. Many people don’t opt for military or employee scholarships because of personal reasons and the period of service attached to many scholarships.

Should I apply for a scholarship or a student loan?

You should always apply for scholarships before you apply for loans. For many scholarships, the deadlines are usually earlier than the starting date, which is why you’re likely to receive a response to them in time for you to apply for student loans. Scholarships, even if they’re of a very little amount, will decrease your student loans significantly when you’re repaying them, and so you should always apply for scholarships.

Final thoughts

There are many ways available for you to fund your studies as a student. The main ways are using loans or applying for scholarships. We’ve tried to answer the question, how is a student loan different from a scholarship? Regardless of what you choose, you will have to do a great deal of research on your own and pick what suits your financial plan.

You should be aware of the options that you have and play to your strength when applying for loans and scholarships. It is also necessary that you check the terms and conditions for anything before you apply for it. Student loans and scholarships are provided to assist deserving students in achieving their college dream. So, make sure you use them to your advantage instead of letting them consume you.