A student loan, unlike any other type of loan, is designed to help students pay for college tuition, textbooks, and living expenses. Because it is specifically for students, it differs from other types of loans in that the interest rate can be substantially lower, and then the repayment plan can be deferred if the student returns to school.
Similar to grants, scholarships do not require repayment and are awarded for almost anything, however specific. Generally, the amount awarded depends entirely on the level of need, which is determined by completing the Free Application for Federal Student Aid (FAFSA).
There are many student loans on the market, but in the United States, the most common options are sponsored by the federal government. Federal loans can be “subsidized” or “unsubsidized.” With subsidized student loans, interest doesn’t begin until the student is no longer in school (rather, the US Department of Education pays the interest while enrolled), but subsidized loans are given only to students with financial needs. Subsidized loans are generally awarded more to students whose annual family income is less than $50,000.00.
If you don’t fall into this category, all is not lost. Unsubsidized loans are given to students without showing financial need but will begin accruing interest immediately.
You may choose not to pay interest while you are in school or during grace periods; however, interest will accrue and be capitalized or added to the principal amount of your loan. With both loans, the same school will determine the amount you can apply for based on your financial need, the cost of tuition, and any other financial aid you may have received.
Federal student loans are an attractive option, as they are financed with government money, which keeps interest rates low, and they also come with favorable repayment options. These do not require a credit check or collateral.
What scholarships are available?
Scholarships are purchased from many different sources and offer aid to a variety of students. From the federal government, the most popular are Pell Grants and Federal Supplemental Educational Opportunity Grants.
There are also more specialized scholarships, such as the Scholarships for Services Rendered in Iraq and Afghanistan and the Scholarships for the Promotion of University Teaching and Higher Education. These programs are designed for certain students and particular areas of study.
So what is better? A loan or a scholarship?
The answer to this question is not black and white. Many students use a combination of loans, grants, and self-pay methods to get through college. Obviously, the biggest difference between loans and scholarships is that loans must be repaid while scholarships do not. However, a stipulation in the scholarships can severely limit the number of students who can qualify.
Scholarships are based on financial need and/or specific demographics or fields of study, while loans are an amount of money that you borrow and pay back with interest over a period of time. Some loans are also based on financial need, which usually has more favorable interest rates.