There are scholarships, education grants and student loans that can be used to pay education costs. But, they all work very differently and you need to understand how they are awarded funds and how they’re repaid. Most student loans and grants are determined by need and financial eligibility and scholarships are typically merit-based. As such, a scholarship and grant will not require repayment and the student loan will.
A Brief Education Grants Primer
An education grant can be helpful for students because it offers financial aid that doesn’t need to be repaid in the future. This is the main difference between student loans and education grants. The grant can be obtained through a number of different organizations.
- The University.
- The State Government.
- The Federal Government.
- A Private Organization.
- A Non-Profit Organization.
Each of these entities will require the prospective recipient to meet certain eligibility criteria and this usually covers their financial situation. When it comes to a choice between a scholarship and an education grant, the former is a merit-based award and the latter is awarded according to need. The Pell Grant is a popular college grant that is usually awarded to undergraduate students from a low-income background.
Do I Need to Repay a Grant?
In the majority of cases there is no requirement to pay back a grant if the student maintains eligibility for the duration of their studies. So, if the student receives an education grant and then drops out of school, they are likely to be required to pay back the funds. Another common reason is the early withdrawal from a program where the grant was awarded or if a service obligation was not met.
How Do I Apply for a Grant?
The first step is to find and research education grants that you qualify for based on your background, needs, field of study and other criteria. Grant providers typically have official web pages that you can visit to find out if you qualify for one of their grants. Here you can check the eligibility requirements, application deadlines and other important information.
When you’ve found a grant that you want to apply for, it’s time to prepare your documents, including academic transcripts, personal statements, financial information and letters of recommendation. If you are located in the U.S, you will need to complete a Free Application for Federal Student Aid (FAFSA) if you are applying for a Federal or State grant.
Pros of Grants
- Certain grants are merit-based which encourages students to achieve and maintain high levels of academic performance throughout their education.
- A grant can provide financial relief and reduce the reliance on student loans to ease some of the financial burden that a modern education can impose.
- Grants are extremely beneficial for students because there is no repayment to worry about later.
Cons of Grants
- The eligibility requirements can be very strict and specific and most applicants are likely to be excluded.
- There are limited numbers of grants available each year, they are highly prized and as you might expect this makes them hard to obtain.
A Brief Student Loan Primer
A student loan is a specialized loan for education expenses that must be paid back. Like any loan, there are interest charges, but typically you won’t need to start making payments on the loan until you’ve finished your college program. You can get a student loan at the college or university, from the federal or state government or from an online lender or a bank. A student loan and a grant are both based on the financial situation of the applicant. But, the main difference is that a loan must be repaid and a grant is more like a gift.
How Does a Student Loan Work?
There are a few factors that can influence the loan terms for college, including the repayment period, the amount borrowed and whether you choose a variable of fixed interest rates. The loan can be sourced from a private financial institution or the government (state or federal). The student loan will be offered to you based on your credit score of the information you’ve supplied on the FAFSA forms.
How Do I Apply for Student Loans?
If you’re applying for a student loan from the government, you will need to fill out and submit the FAFSA. The information you supply will be used to determine your access to school-specific and state aid and certain private providers of financial aid. To complete the FASFA form you will need some important information.
- Bank records and statements.
- Your Social Security number.
- Your alien registration number if you’re not a U.S citizen.
- For drivers, you will need your driver’s license number.
- Records of untaxed income.
- Federal income tax returns, W-2s and records of earned money.
- Assets, investments and account balances.
- An FSA ID for the electronic signature (the username and password required to access and submit the FAFSA form online)
- Dependent students will get the relevant information from their parents too.
Federal Student Loans: Subsidized or Unsubsidized?
There are two main types of federal student loans, subsidized and unsubsidized. They differ in how the interest is accumulated throughout the duration of the loan. Let’s take a deeper look at both of them in more detail.
Subsidized Student Loans
This is a need-based loan that is available for undergraduate students. The interest will only accumulate after the student begins their repayment. Up to that point, the government pays the interest as the student attends school at least half-time or until graduation and the initial six months after that time and there may be a period of deferment.
The repayment typically begins after a grace period of six months after graduation or the student has dropped below half-time enrollment. At this point, the student is responsible for the outstanding balance plus interest.
Unsubsidized Student Loans
These are available to graduate and undergraduate students of any financial need. The loan interest begins to accrue as soon as the loan has been dispersed to the recipient. So, if you take an unsubsidized student loan during the freshman year of college, this will accumulate interest during the remainder of your time spent in school.
A student is responsible for the repayment starting at six months after graduation or if they drop below half-time enrollment. Due to the interest capitalizing on the loan from the day it’s disbursed, it’s likely that the final balance will be significantly more that you originally borrowed. This can be offset if interest payments are made while you’re attending school.
Federal student loans can be repaid with an income-based repayment plan or a standard 10-year repayment plan. If you’re considering a subsidized or unsubsidized student loan there are some pros and cons that you need to bear in mind:
Pros of Student Loans
- When you pay back your student loan you are establishing and building your credit history.
- Certain private and all federal student loans offer fixed interest rates which makes monthly budget planning easier.
- A federal student loan can offer flexible repayment options.
- A student loan gives a student a chance to attend college even if they can’t afford it.
Cons of Student Loans
- The interest accumulation starts immediately on a private and unsubsidized student loan. Over time this will dramatically increase the final amount that must be repaid.
- A student loan is a significant debt load to overcome and this financial strain can limit the access to loans in the future.
- Any debt carries with it some anxiety and stress which can impact the well-being of the student.
A Brief Scholarship Primer
One of the best ways to finance higher education is a scholarship and there are thousands that are available that are based on merit or financial need. This is the primary difference between a scholarship and a grant. A scholarship is usually merit-based, but there are many sources and they don’t require repayment. It can be a significant challenge to find and apply for a scholarship, but if you can secure one it’s well worth the effort.
How Do I Apply for a Scholarship?
When you begin your search for scholarships, it’s easy to become overwhelmed by the process. There is a lot of information to parse through and this research process can take a lot of time. This is why many prospective students simply assume that they won’t qualify for a scholarship and discount it out of hand. For those that want to delve a little deeper, we have some tips to make the hunt for scholarship a little easier.
Consider Your Academic Achievements
If you’ve managed to make the Dean’s List or maintain a certain GPA, you could qualify for a scholarship. Make sure you list any community involvements and you may identify scholarship opportunities in unlikely places.
Check Scholarship Databases
There are scholarship databases for a wide variety of topics that could be in alignment with your background and interests. Make sure that you tell people in your social circles that you’re hunting for a scholarship. There could be someone in your network that’s heard about a scholarship that’s a good fit for you.
Make a List
Take some time to make a list of who you are and the things that made you into the person you are today. This should include aspects of your heritage and contributions that your family has made throughout history.
Maybe you have veterans in your family or a prominent family member belonged to an influential club or society. Some of these organizations offer scholarships or they may be affiliated with others that do.
Get Organized
When your list is complete and you’ve identified scholarships that you can qualify for it’s time to become more organized. This is especially true if you’ve applied for several scholarships at the same time. Make sure you meet the application requirements and deadlines on time. The application formats can be very different, there may be essays to write, videos to create or something simple like a form to fill out.
Keep Your Documents on Hand
When you apply for a scholarship you will need your SAT/ACT scores, certifications, ID cards, academic transcripts and your birth certificate. Keep these handy to ensure that you can apply for an available scholarship without any delay.
A scholarship may seem like the best way to fund an education and for most people this would be true. But, nothing in life is perfect, there are plenty of pros and a couple of cons to consider before you apply for a scholarship.
Pros of Scholarships
- There is no requirement to repay a scholarship and this will reduce the cost of your education.
- When you are awarded a scholarship this will enhance your resume.
- A student is incentivized to maintain high academic standards and excellence when they’ve been awarded a scholarship.
- Those that are awarded based on their academic, athletic and other achievements will be recognized and rewarded for their dedication and achievements.
Cons of Scholarships
- The eligibility criterion for a scholarship is strict and it can exclude some students from qualifying for specific scholarships.
- There are a limited number of scholarships available and you can expect a lot of competition for each spot.
Which is the Best Option?
We’ve now covered the three forms of financial assistance that are available for students. So, the natural question is, which is the best option to meet your needs? Should you try for a scholarship, grant or a student loan? Let’s make a few direct comparisons to highlight the key differences.
Grants vs. Student Loans
It doesn’t matter if the student loan is private or federal or subsidized or unsubsidized, the loan will be repaid with interest. Exactly how much you pay and when you start paying will vary, but there will be payments to make. A grant is different, as long as the eligibility requirements are met there is usually no need to repay the loaned amount.
Scholarships vs Grants
A grant is usually need-based and a scholarship is typically merit-based. A grant will often be awarded based on financial needs and it may be specific to certain students, programs and degrees. A scholarship can be received for a variety of things, including: ancestry, academic achievement, club involvement, charity work and more.
Student Loans vs. Scholarships
The most obvious difference between the two is that a student loan must be repaid and a scholarship does not. There are private and federal student loans that can be used to fund your education. The federal loans are the better option because the interest rates are more favorable and there are borrower protections in-place.
A federal loan will have multiple ways to repay including income-driven plans and student loan deferment. A private student loan is the second option that can be used if you don’t qualify for a federal loan, scholarship or grant. A scholarship can be sourced from private companies, professional organizations, universities and colleges and more.
How Do I Choose the Best Type of Financial Aid?
There is a hierarchy when it comes to financial aid for students. If you start at the top, research your available options and work your way down you can find the best option to meet your needs.
At the top, the very best type of financial aid that you could receive would be a scholarship or a grant. The main reason for this is that you won’t need to repay the money if you stay in compliance with the funding criteria.
If you cannot find a grant or scholarship that you can qualify for there are always student loans. If you need a student loan, remember that a federal loan will always be a better option than a private loan. The private student loan should always be considered to be the final choice when every other avenue has been investigated.
Most students will find that a student loan is the only funding option open to them. This usually occurs because they don’t have sufficiently high grades for a scholarship or grant and/or they can’t meet the strict eligibility requirements. The best way to increase your chances is to work hard, adhere to the criteria and apply for multiple grants and scholarships.
How Can I Manage Student Debt?
The sad reality is that most of us will need to take out a student loan and this can be a significant financial burden that can take a while to overcome. Choosing a federal loan and shopping for the best interest rates and terms can certainly help. Let’s take a look at a few more tips that can help you to effectively manage your student loan debt.
- Make a monthly budget that includes the student loan payments.
- Set up automatic payments.
- Contact the lender for forbearance or deferment if you’re having trouble making the payments.
- Look for refinancing or consolidation options that may lower your payments.
If you’re worried about the long-term consequences of student loan debt, consider a community college for the first two years and then transfer. This will considerably lower the costs of a four-year institution education. Check with your employer or other organizations that offer tuition assistance for their employees. Getting a side hustle, smart budgeting, savings and other financial hacks can offset the costs of education.
