How is a student loan different from a scholarship?
It is quite well known and understood that the cost of attending college in the United States has increased significantly over time. According to data from EducationData.org the annual cost of a 4 year college education is now almost $26,000 for an in-state college and $44,000 for an out of state college:
With college costs now exceeding $100,000 at the low end of the range, the obvious question is how do we pay for this? If you’re preparing to apply for college, you may have found yourself asking this question. Student loans and scholarships, which includes financial aid, are the two most prominent sources of support. Both options seem to provide something similar in terms of how they give students the funds they need to pay for their college education. However, there are some key differences set student loans and scholarships apart.
How is a student loan different from a scholarship? 3 Main Ways
1. Qualification Requirements
Student loans tend to have more rigid requirements than scholarships. For example, you are only eligible to apply for a federal student loan if you meet all of the following criteria:
- Student is enrolled for at least part-time studies.
- You file the Free Application for Federal Student Aid form.
- One of the following describes you: U.S. citizen, permanent resident, or an eligible citizen of a non-U.S. country.
- You’re enrolled in an eligible program.
- You have not graduated from college already.
There are other requirements in addition to these, especially if you hope to apply for a Federal PLUS loan. Furthermore, in applying for a private student loan, you may need to pass certain credit checks and other traditional loan requirements.
Scholarship Requirements Are Less Onerous But Still Intense
By contrast, the requirements for a scholarship are set by the organization that offers the scholarship. For example, a student-athlete may find that maintaining a certain grade point average is a condition of maintaining their scholarship. Somebody who receives a scholarship from a private organization may need to meet other requirements. It all depends on the program providing the scholarship money.
2. Repayment
Clearly the most obvious difference between student loans and scholarships is the need for repayment. With a student loan, you’re obligated to make repayments, with these repayments typically beginning when you leave college and enter the world of work. You will also need to pay interest on your student loan which can vary widely. By contrast, a scholarship is an award. This means you’re not obligated to repay any of the money you receive for your scholarship. So long as you continue to meet the criteria set by the program providing the money, that money is yours to keep and do with as you will.
One caveat on Repayment
There are specific situations where student loans might not need to be repaid. For example, there are student loan forgiveness programs that you might be able to qualify for. Most of these programs are funded by non-profit organizations and governments. If you qualify, it might be a way of having your student loans repaid by these organizations on your behalf.
3. How You Receive the Money
Building from the previous point, sometimes you may not get your scholarship money actually deposited into your bank account. For example, colleges that provide scholarships will typically automatically use the money as a discount on their tuition or other services. When you receive your tuition bill at the end of the semester, you will see the scholarship funds were used to provide a discount on tuition. Other forms of scholarship may have similar restrictions, such as a book scholarship being provided in bookstore credits. The point is that in these situations you don’t actually get given the funds directly. By contrast, student loans are deposited directly into your account. While this provides more spending freedom, it also increases the risk of the money being spent on something other than your education.
How Is a Student Loan Different from a Scholarship?
In summary when it comes to financing your education, you should look into both student loan and scholarships that are available. The differences between these two fall into 3 areas:
- How you apply and what you need to qualify. Scholarships can often be merit-based or needs-based while student loans are strictly financial.
- For the most part, you will need to repay a student loan and will incur interest cost. On the contrary a scholarship is an award and does not need to be repaid.
- Student loans will often be provided directly to you. With scholarships how you receive the funds may differ depending on the type of scholarship you receive.
Though that have their differences, both student loans and scholarships are viable ways to help pay for your college education. You can also apply for and receive several scholarships at once. It’s a great idea to research all of these options to lower the burden of paying for college.