How is a student loan different from a scholarship?

Home Forums Student Loans How is a student loan different from a scholarship?

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    Jordan Moore
    Team StellarFi

    There are usually two options – aside from paying out of pocket – students have to pay for college: loans and scholarships. You need to pay back your student loan with interest after you graduate. Scholarships are funds you don’t have to pay back.


    Scholarships are grants that are usually merit or need-based. Merit-based scholarships are granted to you based on academic achievement. Need-based scholarships are intended to help students from low-income families afford college. To get a need-based scholarship you must fill out the Free Application for Federal Student Aid (FAFSA®) application. Colleges review your FAFSA and present you with potential scholarships and federal loans to cover the cost of education. 

    When applying for scholarships you may need to submit additional documents like an essay, resume, and recommendation letter(s). You can get federal, state, university, or private scholarships.

    The U.S. Department of Labor has a search tool where you can browse through over 8,000 scholarships, grants, and fellowships. Some of these are aimed at specific groups like athletes or students with a certain GPA. There are others aimed at specific race/ethnic groups and fields of study (majors). 

    You can meet with your school counselor before applying to understand which scholarship might best suit your abilities and needs.

    Student loans

    Student loans can be private or federal. Federal loans are offered by the United States Department of Education and you can get private loans from banks, credit unions, and online lenders. There are several benefits or protections with federal loans such as forgiveness programs, lower and fixed interest rates, and income-driven repayment options. You begin paying these loans after you graduate.

    With private loans, interest rates are higher and you need a good credit score or a cosigner with a good credit score if you want to get the best interest rates. Though some lenders allow you to defer your repayment until after you graduate, the interest rates on the loan continue to accrue, increasing the total balance you will need to pay once you graduate, and hopefully also immediately find a job. Most lenders advise you to make some fixed payments or tackle the interest every month while you are enrolled at school.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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