Difference Between Student Loans, Scholarships, and Grants

Students loans are drastically different from scholarships and grants. Scholarships and grants are generally considered “gift aids,” as recipients are not responsible for paying the provided amount back after graduation. Loans, on the other hand, must be repaid according to the terms and conditions agreed upon at signing.

It’s worth noting, however, that loans generally come with few other stipulations. Scholarships are merit-based, while grants are needs-based; in both cases it’s possible not to qualify for enough funds to cover your educational expenses. Student loans can supplement the difference and make it possible for you to get the education you deserve.

Student Loan Types

There are two primary types of student loans. Loans that are funded by the federal government are called federal student loans. Other loans are offered through private sources, like banks and financial institutions.

Federal Student Loans

Federal student loans are offered through the United States government. Because of this, they generally have lower interest rates and flexible repayment options. There are two federal loan programs: the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan Program.

The Federal Perkins Loan Program is only available to undergraduate and graduate students with exceptional financial need. These are school-based loans and the school will be the official lender. Undergraduates can receive loans up to $5,500 per year and graduate students can receive up to $8,000 per year. The actual loan amount depends on several factors, including need, availability of funds, and the amount of other aid already secured.

As the larger of the two loan programs, the Direct Loan Program offers students four different financing options.

Undergraduate students are eligible for $5,500 to $12,500 in Direct Subsidized Loans and Direct Unsubsidized Loans. Graduate students, on the other hand, may qualify for up to $20,500 in Direct Unsubsidized Loans each year. The exact loan amount is also dependent on the number of years in college. This type of loan is processed through the United States Department of Education, which is the official lender.

Private Loans

When scholarships, grants, and federal loans aren’t enough to cover your educational expenses, a private loan may be the best answer. These credit-based loans are not associated with the government and generally require less time to apply. Overall, they are more like traditional consumer loans, but include in-school deferment, hardship deferment options, and no pre-payment penalties.

How to Apply

To qualify for a federal student loan, you must submit a Free Application for Federal Student Aid (FAFSA). Your loan offers will be included in the financial aid package sent to you by your chosen institution upon admittance. Private loans, however, must be processed through the associated organization or bank.

Do you want to apply for a Pell Grant? Make sure you meet the required criteria and your documents are submitted correctly! When you have made the decision to apply for a Pell Grant then you need to act on it as soon as possible. You need to act fast because the Pell Grant is distributed to students on a first-come and needs basis, providing of course that they meet the required criteria. With the enormous number of students that apply for this grant each year, it means that if you don’t want to miss out, then your application needs to be received as early as possible.

What is the Pell Grant and How Does it Help?

Pell Grants are awarded by the federal US government to help students pay for college or vocational school. Pell Grants can cover all or a portion of tuition costs, as well as books, supplies and personal expenses like room and board. Unlike student loans, however, Pell Grants don’t have to be repaid under most circumstances. The federal government created Pell Grants to help students with the most amount of financial need. As a result, these grants aren’t always easy to qualify for. However, those who do qualify receive substantial aid that they can use alongside student loans, scholarships and other grants. While Pell Grants aren’t necessarily designed to cover the full cost of attending college depending on the college you are attending, but it will sure help with your college tuition.

Pell Grants are intended to supplement other forms of financial aid, such as scholarships and student loans. Every year, the U.S. Department of Education sets the maximum amount of each Pell Grant award; for the current school year, that amount is $7,395. (Which you can find the maximum amount and payment schedule here on https://fsapartners.ed.gov/)

Students with family incomes up to $65,000 may be eligible for Pell Grants. However, most Pell awards go to students with family incomes below $30,000. There is no charge to apply for a Federal Pell Grant. You also must meet certain conditions to receive federal aid. Pell Grants are available only to undergraduate students, so you can’t rely on this type of aid while you’re earning an advanced degree — the one exception being postbaccalaureate teacher certification programs. Eligible students can receive the Pell Grant each year they’re enrolled, and is only available if the student still qualifies and it is only available up to 12 semesters or roughly six years. Once a student also completes a baccalaureate or their first professional degree, the Pell Grant is also no longer available.

Students should view it as a significant source of aid, but also understand it is only a part of the larger financial aid picture. Additional forms of student financial aid that are typically used to help supplement the Pell Grant are: scholarships, federal work-study programs and student loans. The Pell Grant is unique among other forms of aid because a student’s eligibility does not vary across schools, as long as the institutions participate in the federal student aid program. About 6,000 institutions participate, according to the most recent Department of Education numbers.

The first step to receiving a Pell Grant is completing and submitting the FAFSA. A family’s information on the FAFSA, including income and number of children enrolled in college, is used to generate a number known as the students expected family contribution, or EFC, and to determine whether he or she is eligible for a Pell Grant.

Here are some steps you can follow for when you decide to apply for the Pell Grant from StudentAid.gov

• Step 1 - Get your application in early. The Pell Grant is on a first-come and needs basis.
• Step 2 - Before you apply, make sure you are eligible to be able to receive a Pell Grant check.
• Step 3 - You will be required to provide financial documents, such as tax returns and W2s, as well as forms of identity such as a driver’s license and current bank statements.
• Step 4 - Complete your FAFSA application and forward it. These are generally available from the school counselor’s office or the financial aid office. Don’t forget to make a copy of all of your application materials before you send them.
• Step 5 - If you are accepted, you will receive a SAR or Student Aid Report, which will outline how much money you will receive. It will also provide instructions on how you are able to access your Pell Grant money.