You may be wondering what the difference is between scholarships, grants, work-study programs, and loans. The four main types of financial aid differ in terms of structure and eligibility. Here is the basic information you need to know about the different types of financial aid:
The Basics: Comparing Financial Aid Options
- Scholarships: Financial aid you don’t need to pay back. Based on academic or other achievement.
- Grants: Financial aid (generally offered by the government) that you don’t need to pay back. Based on financial need or specific criteria (underrepresented demographics or specific academic interests).
- Work Study: Program that allows students to work part-time to earn money for educational expenses. Based on financial need and availability of positions.
- Loans: Borrowed money that must be repaid with interest. Based on lender and type of loan.
Which Type of Financial Aid is Best?
When considering financial aid offers, you may be comparing all of these types of aid at once. What we always recommend is accepting aid in the following order:
- Scholarships and/or Grants (free money)
- Work-Study (earned money)
- Loans (borrowed money)
Scholarships and grants are the best option as they don’t need to be repaid. However, it’s unlikely that you’ll cover the entire cost of college with just scholarships and grants.
If offered work-study, it’s a great idea to accept that second. This money is earned, meaning that you don’t need to repay it over time.
Loans should always be accepted last, with federal loans accepted first before dipping into private loans. This is because private loans will need to be repaid with interest, which could rack up the principal balance quite a bit. Your eligibility and rates vary based on lender and type of loan. Find the best student loan rates.
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Scholarships
Where Do Scholarships Come From?
Scholarships come from a variety of sources such as local organizations, charities, businesses, colleges and universities, the government, and various foundations.
Who is Eligible for Scholarships?
Eligibility for scholarships vary based on each scholarship’s specific criteria.
Some scholarships are strictly merit based, meaning that you don’t need to demonstrate any level of financial need to be considered. Others are strictly need-based and ask applicants to prove financial need in order to qualify.
That said, there are scholarships for nearly everything you could imagine. From the Asparagus Club Scholarship to the National Potato Council Scholarship, there’s something for everyone.
Each scholarship will require a different application process. Some may require you to complete an application or write an essay, and others may just require you to submit basic demographic information.
Grants
Grants are a similar type of financial aid to scholarships. They both typically don’t need to be repaid and they can come from a variety of sources. Oftentimes, when going through the college financial aid process, most students see grants come up when examining their federal aid.
So, while grants can come from your college or a local nonprofit, we’ll frame this section around federal grants as the non-federal grants don’t differ too much in nature from scholarships.
Where Do Grants Come From?
Federal grants come from the U.S. Department of Education in the following forms:
- Federal Pell Grants
- Federal Supplemental Educational Opportunity Grants (FSEOG)
- Iraq and Afghanistan Service Grants
- Teacher Education Assistance for College and Higher Education (TEACH) Grants
We won’t dive deep into each one because that could be its own blog in itself.
Who is Eligible for Grants?
Similar to scholarships, the eligibility requirements for grants vary for each specific one. While some non-federal grants may be awarded strictly for merit, almost all grants from the federal government require you to demonstrate some level of financial need.
There may also be things you need to do to maintain your eligibility if the grant is intended to be renewed every so often. For example, a grant that issues $5,000 per academic year for tuition costs may ask you to resubmit your financial information to determine whether you still demonstrate the financial need necessary to be eligible.
Work-Study
Work-study is a federal aid program that provides part-time jobs for undergraduate and graduate students with financial need. The money they earn from these jobs allows them to pay for educational expenses.
While qualifying for work-study does not guarantee a student a part-time job while in school, it does mean that there are federal funds dedicated to paying that student should they decide to participate in a work-study job.
Where Does Work-Study Come From?
Work-study is provided by the federal government via federal student aid. After filling out the FAFSA, students may see work-study as part of their financial aid package.
Who is Eligible for Work-Study?
To be eligible for this type of financial aid, you must first plan to enroll in a college or career program. Additionally, you must submit the FAFSA and demonstrate financial need.
Work-study is available to both part-time and full-time students, as well as undergraduate, graduate, and professional students.
Loans
The last type of financial aid is a loan. They are often referred to as “borrowed” money. With loans, you borrow an amount from a source and must pay it back over time with interest. Your eligibility and rates vary based on lender and type of loan. Discover the best loan option for you.
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Where Do Loans Come From?
There are two main types of loans: federal and private loans.
Federal loans come from the federal government and generally have lower interest rates, better terms and conditions, and more flexible repayment plans.
Private student loans come from a private lender such as a bank or other financial institution. Private loans generally have higher interest rates, less favorable terms, and a less flexible repayment plan, however, they are valuable because they can fill in any gaps where the cost of attendance isn’t covered by other aid.
Who is Eligible for Loans?
Student loan eligibility varies based on your lender and type of loan. Submit one personalized form and find out what loans YOU qualify for in minutes.
A scholarship is a form of financial aid given to a student to support paying for their education. Scholarships are typically awarded based on academic or other achievement.
Scholarships come in a variety of sizes and structures. For example, some scholarships may award students $100 to pay for books while others may award $10,000 for tuition costs. Sometimes scholarships are one-time checks, and other times they provide funds on a more consistent basis.
Scholarships, unlike loans, do not need to be repaid. However, it is always important to read the fine print when accepting a scholarship. Some scholarship programs require additional work, engagement with the program, or service after the program concludes.
Summary
This was a LOT. *virtual high-five for getting to the end of this*
It may be overwhelming attempting to absorb all of this information about the various financial aid options. The good thing is that there are various options. Of course, start with seeking out scholarships and move up the ladder until private loans are the remaining option.
And when/if you do get there, know that we’ve got your back here at Sparrow, where you can compare loan rates in the click of a button!