Scholarships & College

Grants vs Scholarships vs Student Loans: Key Differences

How each type of college funding works, which must be repaid and the order many families use them in.

By KnowHowDaily Editorial TeamUpdated November 14, 20268 min read

In this guide

Key takeaways

Grants and scholarships are gift aid that generally doesn't need to be repaid.
Grants are usually based on financial need. Scholarships are often based on merit or other criteria.
Student loans must be repaid with interest.
Many families use gift aid first, then federal loans, and private loans last.

Introduction

Paying for college usually involves a mix of funding. Grants, scholarships and loans all help cover costs, but they work very differently, especially when it comes to paying them back.

This guide explains the differences and how to compare a financial aid offer.

At a glance

	Grants	Scholarships	Student loans
Must be repaid?	Generally no	Generally no	Yes, with interest
Usually based on	Financial need	Merit, talent or other criteria	Enrollment; private loans also use credit
Main sources	Federal government, states, colleges	Colleges, organizations, employers	Federal government, banks and lenders
How to apply	FAFSA and school forms	Separate applications or automatic	FAFSA for federal loans; lender applications for private

Grants

Grants are usually awarded based on financial need and generally don't need to be repaid, as long as you meet the conditions.

Federal Pell Grant: for undergraduate students with financial need. For 2026–27, the maximum award is $7,395.
Federal Supplemental Educational Opportunity Grant (FSEOG): for students with exceptional need, offered by participating schools.
State grants: many states offer grants to residents attending in-state colleges.
College grants: many schools offer their own need-based grants.

Some grants may need to be repaid if you withdraw from school early or don't meet the conditions.

Scholarships

Scholarships are also gift aid, but are often based on merit, talent, background, field of study or other criteria.

College scholarships, sometimes awarded automatically with admission
Private scholarships from businesses, foundations, community groups and employers
Department scholarships for students in a particular major

Some scholarships are renewable each year if you keep a certain grade average. Outside scholarships should be reported to your college, as they can affect your aid package.

Student loans

Loans must be repaid with interest, so most families use them after grants and scholarships.

Federal student loans

Direct Subsidized Loans: for undergraduates with financial need. The government pays the interest while you're in school at least half-time and during certain other periods.
Direct Unsubsidized Loans: not based on need. Interest builds up from when the loan is paid out.
Parent PLUS Loans: for parents of dependent undergraduates. From July 1, 2026, new borrowing is capped at $20,000 per student per year and $65,000 in total per dependent student.

Graduate PLUS loans ended for new borrowers from July 1, 2026, with some exceptions for students already enrolled. Federal loans offer fixed interest rates and federal repayment options.

Private student loans

Private loans come from banks, credit unions and online lenders. Rates and terms depend on your credit or a co-signer's, and they usually have fewer repayment protections than federal loans.

The order many families use

Gift aid first: grants and scholarships.
Work-study and savings: part-time work and money set aside for college.
Federal student loans: starting with subsidized loans.
Parent PLUS loans, if needed and affordable.
Private loans last, after comparing rates and terms carefully.

How to compare financial aid offers

Separate gift aid (grants and scholarships) from loans and work-study.
Work out the net price: the cost of attendance minus gift aid.
Check which awards renew each year, and any conditions.
Estimate the total you'd borrow over all your years of study, not just year one.
Ask the financial aid office about anything unclear, or if your family's situation has changed.

A simple comparison example

Example: two colleges both cost $30,000 a year.

College A offers $12,000 in grants and scholarships and $5,500 in federal loans. Net price: $18,000.
College B offers $6,000 in scholarships and $10,000 in loans. Net price: $24,000.

Both offers look like about $16,000 to $17,500 of help, but College A costs $6,000 a year less once you remove the loans, because the loans still need to be repaid.

Work-study

Federal Work-Study provides part-time jobs for students with financial need, often on campus. You earn money as you work, which you can use for living costs or books. It isn't taken off your bill upfront, so it's usually clearer to count it separately when comparing offers.

Watch out for aid scams

Genuine grants and scholarships don't charge application fees, and the FAFSA itself costs nothing. Be wary of any company that asks for payment to find you aid, promises you'll receive money or asks for bank details to "hold" an award. Your school's financial aid office and StudentAid.gov are reliable places to start.

Conclusion

Grants and scholarships help pay for college without needing to be repaid, while loans must be paid back with interest. Fill in the FAFSA, apply for scholarships, compare the net price of each offer, and borrow only what you need, starting with federal loans.

Common questions

Do scholarships affect financial aid?

They can. Outside scholarships must be reported to your college and may reduce other aid, often loans first. Ask your financial aid office how they handle it.

Can grants ever need to be repaid?

Sometimes, for example if you withdraw from school early or no longer meet the grant's conditions.

Are federal or private loans better?

Federal loans usually offer fixed rates and more repayment protections. Many families use federal loans before considering private loans.

Sources and further reading

This guide is general information. Deadlines and rules change, so always confirm details with the scholarship provider, your school or studentaid.gov.