Grants, Loans and Scholarships: What’s the Difference?

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Congratulations! You’ve been accepted to college. Now the question is: how do you finance your education? Unless you have a very generous family or exceptional athletic talent, odds are you will be using some sort of financial aid. From loans to scholarships, here’s what you need to know about paying for college.

Loans: Subsidized vs. Unsubsidized

All loans are not created equal and knowing the difference can save you thousands of dollars in the long run. A subsidized loan is provided by the government and is offered to undergraduate students based on financial need. There are several advantages to subsidized loans. First, the interest is typically very low. This means the amount of money you pay to borrow the funds is kept at a minimum. Another subsidized loan benefit is that the U.S. Department of Education will help you out by paying the interest on your loan while you’re enrolled in school at least half-time, for six months after leaving school, and during deferment (which can be used in times of financial need).

An unsubsidized loan is not based on financial need. Unsubsidized loans are available to undergraduate and graduate students. The amount you can borrow is determined based on the cost of attendance and the amount of other financial aid you receive. While in school, any interest accrued is the responsibility of the borrower. This means if you do not pay the interest while in school or during a period of forbearance, interest will compound, capitalize, and be added to the balance of your loan.

A grant does not need to be repaid; it is a gift based on financial need. Grants can come from the federal government’s student aid, your state’s government, the college or university you attend, a private organization, or a nonprofit organization. Your financial need, from the federal or state government perspective, is based off the information you provided on your FAFSA.

Some of the most awarded grants are:

  • Federal Pell Grants
  • Federal Supplemental Educational Opportunity Grants (FSEOG)
  • Teacher Education Assistance for College and Higher Education (TEACH) Grants
  • Iraq and Afghanistan Service Grants

The Federal Pell Grant is typically awarded to undergraduate students who have not previously attended college. In some cases, students pursuing additional study in the teacher education field will qualify for a Federal Pell Grant. Students who have been incarcerated or convicted of a sexual offense are not eligible to receive this grant. Your eligibility will be based on financial need, cost of attendance, enrollment status, and academic plans.

FSEOG are offered to students with exceptional financial need and are used in conjunction with Federal Pell Grants.

TEACH grants are offered to students in teacher education programs. This grant requires certain class requirements to be fulfilled before an undergraduate student can be eligible. Another unusual thing about the TEACH grant is that it can be subject to repayment, and thus classified as a loan, if the student does not pursue a career in education.

Iraq and Afghanistan Service Grants are available to students whose Expected Family Contribution exceeds the amount eligible for a Federal Pell Grant and whose parents or guardian died as a result of military service in Iraq or Afghanistan after the 9/11 terrorist attacks. The student must also have been under the age of 24 or enrolled, at least half-time, in college at the time of the parent or guardian’s death.

Unlike grants, scholarships are merit-based. Scholarships can come from almost anywhere. Most college and university athletic departments offer scholarships to prospective student-athletes. However, your high school might provide scholarships to inspiring seniors. The company you or a parent/guardian works for might offer scholarships. In order to be awarded a scholarship, you do not need to demonstrate financial need, but, like a grant, a scholarship does not need to be repaid.

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