The Difference Between a Loan, a Grant and a Scholarship

by Shewanda Pugh
It is important to understanding funding sources before accepting financial aid.

The typical student financial aid package includes a loan, grant and/or scholarship. There are key differences between each of these financial sources, and it is imperative that a potential student understand these differences before accepting them as currency for the financing of their education. Failing to understand the expectations of each funding source can result in the loss of financial aid while enrolled, or, after graduation, the garnishment of wages and damage of individual credit, provided expectations are not met.


A loan is a sum of money awarded to an individual with the intention of it being repaid. Loans may differ in interest rates, time allowed before repayment must begin, borrower requirements, length of time before repayment must begin and administer of loan. They can be either federal loans or private loans, awarded by independent third parties. Two of the most common federal loans are both Federal Stafford Loans, each of which are available to undergraduates and graduate students. The subsidized version is one where no interest accrues during the course of studies, while the unsubsidized Federal Stafford Loan is available to students regardless of need. Private loans are awarded by banks to credit-worthy recipients.

Need-Based Grants

A grant is an award of money that does not need to be repaid. In many instances, the award is based on income criteria, though there are examples when academic competitiveness may be a factor. The Federal Pell Grant and Federal Supplemental Educational Opportunity Grant are generally awarded to those with exceptional financial need, provided they have not earned a bachelor's or graduate degree.

Video of the Day

Brought to you by Sapling
Brought to you by Sapling

Other Student Grants

Other grants, like the Academic Competitiveness Grant combine financial need with academic achievement to determine eligibility for the award. The National Science and Mathematics Access to Retain Talent Grant combines exceptional need, scholastic achievement and an interest in mathematics or science to determine eligibility for the award. The Teacher Education Assistance for College and Higher Education does not consider income at all, but instead request that recipients commit to teaching for at least four years in a high-need field at a school that serves low-income students. In addition, many colleges and universities have their own grants, awarded according to criteria they establish. This can include income-based criteria, academic-based criteria or a host of other factors. Again, the recipient of a grant needn't repay it.

Merit Scholarships

Scholarships are financial awards, given in honor of merit or academic achievements, need, interests and/or other relevant criteria as determined by the governing body. Like loans and grants, scholarships are awarded with the intention of funding studies. Unlike loans and grants, there is a much greater variety of sources by which scholarships are awarded, and they include colleges and universities, individual university departments, nonprofit foundations, corporate organizations and a number of other third parties. Often, the continued funding of a scholarship is based on the maintenance of certain criteria. For example, University of Miami freshmen who are awarded a scholarship are expected to enroll in no fewer than 12 credits for the fall and spring semesters. Many academic scholarships require the maintenance of a specific grade point average and enrollment in a particular program, such as biology or anthropology.

Extracurricular Scholarships

Extracurricular scholarships are similar to merit based scholarships, in that they are rewarded for a perceived talent in a particular activity and continued funding is contingent in the recipient's participation in that activity. For example, a football, dance or marching band scholarship usually requires that the student continue to participate in that activity while enrolled in school (while maintaining a certain minimum grade point average) in exchange for financial assistance.

About the Author

Shewanda Pugh attended Alabama A&M University, where she graduated with a Bachelor of Arts in political science. She also holds a Master of Arts in writing from Nova Southeastern University. Pugh's work has been featured in several print publications, including the "Farquhar Forum," "Go!Riverwalk" and "Foreword Magazine."

Photo Credits

  • money makes money image by Andrey Andreev from