Scholarships, Grants and Loans: What is the Difference?
With the cost of attending a college in the United States at an all-time high, it makes perfect sense to sit down and consider what your financial options are. In fact, you are faced with the potential to access several different options: Scholarships, grants and loans. Any of them can help you come up with the amount of money you need to further your education. However, before you go ahead and apply for any of them, it is important you completely understand what each involves.
What are scholarships?
A scholarship is frequently referred to as “gift aid.” It may also be called “free money.” This is because, a student does not have to repay the money he or she receives for a scholarship. It is often confused with a grant but has a major difference: Scholarships are given based on merit. You can receive a scholarship from a variety of sources including:
- The federal government
- Your state government
- Your college or university
- A private organization
- A nonprofit organization
In order to obtain a scholarship, you have to apply for it. It may require some time and effort to find one that matches your skills. It may take even longer for you to find one whose criteria you meet. Then, you’ll have to take the time to fill out the application and file it on time. Some may require academic information to be submitted as well, while others will want you to write an essay or perform some other task. Yet, the time can have a big payoff if you ultimately receive money you do not have to pay back.
Sometimes a scholarship is directed at paying for a specific aspect of your education. If, for example, you receive a scholarship from the college you are going to attend, it might automatically be used to pay for all or part of your tuition. In fact, in the cases of many scholarships of this nature, you will never actually receive a check. It will go directly to the institution you are planning to attend.
What is a grant?
Like scholarships, grants are viewed as free money. In some cases, the terms grant and scholarship have become confused. This is often because the word “scholarship” sounds grander than the term “grant.” However, in its strictest sense, a grant is granted to someone who clearly exhibits financial need. In some instances, grants are directed at a specific ethnic, racial or religious group.
As is the case with scholarships, you have to find grants. You will then need to apply for them. Yet, the time spent doing so is easily worth it. The search has become more difficult over the past few years. According to some organizations, grants are less frequent than they were in the past.
What about loans?
Loans are exactly that – loans. They are not free money. They are not a gift. They are financial contract signed between the borrower and the lender. Part of the contract demands you repay the money as the terms state. Usually, you don’t have to pay the loan back while you are in school, but you will eventually need to pay back the money, and depending on the loan, the interest it accrues.
Sources of loans can be the government, usually the federal government. Alternatively, you can borrow money for your education from private sources such as banks and credit unions. The rates and the terms of repayment will vary. Be sure to always think twice before you arrange for a loan, and don’t do it if there’s another way. If not, make sure you fully understand the terms involved.
Understand the financial options
It is increasingly important that you understand what financial options are available to you. You need to fully comprehend the true cost of your education as well as how to finance it. Scholarships, grants and loans are available for those who seek them out. From the designation of the money to repayment plans and taxation, you need to be aware of the consequences. If you get it wrong, you may end up paying for your education for longer than it took to obtain it.
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