Student loans 8 February 2023

How is a Student Loan Different from a Scholarship

This blog post explains the differences between student loans and scholarships as options for funding your college studies.

How Is A Student Loan Different From A Scholarship?

Student loans and scholarships are just two of the various ways that a student can use to pay for college, but these options have very different features. Understanding the differences between student loans and scholarships is an essential part of making sure that you’re choosing the right financial aid option to help fund your education.

What is a Student Loan?

A student loan is borrowed money that must be repaid (typically with interest) to an institution such as banks, credit unions, and the government. The purpose of this loan is to help students pay for college expenses such as tuition, housing, and books. Student loans are available to any student enrolled in an accredited college or university, including graduate students, and can also be accessed by students who have already earned a degree.

Student loans come in two main types – subsidized and unsubsidized. Subsidized loans are offered by the government, have a lower interest rate, and do not accrue interest while the student is in school. Unsubsidized loans, on the other hand, are not government subsidized, so they have higher interest rates, but can be used to cover any expenses beyond tuition, such as books or room and board. The loan amount for an unsubsidized loan is usually based on the student’s financial need and credit rating.

You can easily calculate your monthly payments with our simple to use calculator:

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What is a Scholarship?

A scholarship is a form of financial aid that doesn’t need to be paid back and is typically awarded on the basis of academic achievement, athletic ability, or other special talents such as music, art, and writing. Scholarships can come from private organizations, businesses, or directly from the college or university that a student is attending. This type of funding is usually awarded to full-time students and can cover costs such as tuition, fees, room and board, books, as well as other expenses related to higher education.

Student Loans vs Scholarships

There are several key differences between student loans and scholarships. While both of these options provide students with financial support for college, they differ in the type of aid that they offer, the criteria used to award them, and the repayment process.

Here are the key differences between student loans and scholarships:

Student LoansScholarships
Eligibility Available to any student, regardless of academic or extracurricular achievementLimited to students who meet certain criteria e.g. an excellent academic record or extraordinary athletic abilities
DurationRepayment typically spans over several yearsMost are awarded for a single academic year
Amount Usually based on the student’s financial need and credit ratingMay be offered in an amount
up to full tuition
Type of Aid Must be repaid with interestMoney is given to students without any expectations or requirements for repayment
Award CriteriaBased largely on financial need and credit ratingAwarded solely on the basis
of academic, athletic or
artistic achievement
RepaymentMust be repaid in monthly payments over a set period
of time
Do not require repayment
and funds are typically
awarded only once

Which Option is Best For You?

For students facing college expenses, both student loans and scholarships can be beneficial solutions. Student loans provide a loan that must be paid back with interest, making them the best option for those in need of short-term financial aid or those who have a steady source of income to pay back the loan.

Scholarships are funds given to students without any expectations or requirements for repayment and are typically awarded based on academic achievement, athletic ability, or other special talents. Since scholarships don’t need to be repaid, they are the best option for students who are in need of long-term financial aid and may not have a steady income to repay a loan.

Ultimately, the type of funding that is best suited for you will depend on your individual needs and financial situation so it’s important to thoroughly research the different types of aid available and consider all factors before making a decision.

How to Apply

Student Loans: Steps to apply
The process of applying for a student loan is relatively straightforward and can be completed in just a few steps. First, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA), which will provide an estimate of your expected family contribution. You will then need to compare lenders and select one that offers the best terms for your loan. To complete the application, there is some basic personal information and financial documents that will need to be provided.


The main personal/financial information needed to apply for a student loan includes:

  • Complete Free Application for Federal Student Aid (FAFSA)
  • Proof of income
  • Bank statements
  • Proof of employment
  • Income tax returns 
  • Social security number      
  • Driver’s license number

Scholarships: Steps to apply
Applying for scholarships is a more involved process than applying for a student loan because it typically requires students to prepare an essay or other materials in order to demonstrate their qualifications. Students should begin by researching scholarship opportunities, both at their school and nationally, that match their academic achievements, extracurricular activities, or interests. They should then prepare the necessary materials and submit them for review.


Here’s a breakdown of the steps to follow when applying:

  • Research potential scholarships that match academic achievements, extracurricular activities, and interests
  • Prepare an essay or other materials demonstrating qualifications
  • Submit application requirements for review
  • Meet any deadlines
  • Provide letter(s) of recommendation and/or transcripts as required. 
  • Provide proof of enrollment and/or financial need as required.
  • Follow up on any additional requirements.
  • Wait for a decision from the scholarship committee. 
  • Accept or decline the scholarship award.
  • Sign any necessary contracts or agreements.
  • Submit thank-you letters to donors and/or selection committee members (if required). 


Are scholarships only available for tuition expenses?

No, scholarships may also be used to cover other expenses such as room and boarding, books, supplies, and transportation.

Are there any differences between private and federal student loan programs?

Yes. While both types of loans come with similar interest rates and repayment options, federal student loans usually have more favorable terms as they often come with lower interest rates and more flexible repayment plans.

Are there taxes on student loan proceeds?

No – most student loans don’t have to be reported as income and are therefore not subject to taxes. However, make sure to check with your lender or tax advisor for specific details regarding your situation.

Final Thoughts

Student loans and scholarships are two of the most common sources for financing higher education. Although both of these options can be used to cover the cost of tuition, differences such as the application process and eligibility criteria are important aspects to be aware of. Ultimately, it is crucial to carefully consider the pros and cons of each option before making a decision. Understanding the differences between them can help you make a better decision about which type of college funding is best for your individual needs and financial situation. Remember to research all available options, and speak with an advisor or financial aid officer for additional guidance.