How is a student loan different from a scholarship? If you ever find yourself asking this question, then you are not alone. Many students understand the concept of a student loan. However, they find it difficult to understand how it differs from a scholarship. Don’t worry, by the end of this article, you will understand the differences between a student loan and a scholarship.
Both a scholarship and a student loan are means of getting financial educational finances. However, in the case of a student loan, you will pay back the funds you receive. On the other hand, a scholarship is like a reward or assistance for academic excellence. The long and short is that you will not pay back a scholarship fund.
A scholarship usually has a provider or providers who carter for the funds. Therefore, you don’t need to pay back the funds later. If you are looking for ways to raise funds for your education, you might consider a student loan or a scholarship.
If you sincerely want to know the answer to the question; how is a student loan different from a scholarship? Continue reading till the end.
You might have an interest in Bank of AmericaStudent Loans: Refinancing and Alternatives.
What is a Student Loan?
The question; of what is a student loan is not uncommon, especially among first-timers. In the simplest term, a student loan is a form of financial assistance that banks and educational institutions offer students. This fund aims to enable students to pay their tuition and fees, accommodation, and other educational expenses.
Like other forms of funds, you borrow, a student loan has its procedure and requirements. Doing it the right way can be a great way to finance your education. However, if you don’t know how it works, you might run into trouble with a student loan.
Lenders usually factor loan repayment into the borrower’s income. Therefore, this makes it a bit difficult to pay your monthly loan installment when you finally land a job. On the other hand, scholarships are not tied to your profession. Many organizations raise funds for scholarship reasons like:
- Tackle the financial needs of students from low-income families
- Award for academic fineness
- Merit for athletic performance etc.
Are you a graduate student looking for a loan to finance your education? Read: 10 Best Graduate Student Loans In 2022
Types of Student Loans
There are two broad types of student loans which are subsidized and unsubsidized loans. There are also a variety of options available for students looking for a good deal on a loan. Before you apply for a student loan, it is essential to take some time to understand the different options available.
The good thing about student loans is that today, there are more options available than before. There are two broad types of student loans, Federal loans, and Private loans. A good understanding of how these two main types work is primary before comparing and making a final decision.
Federal Student Loans
Federal student loans have government backing and the purpose is to finance your education. There are several benefits of a federal student loan over a private one. Federal student loans have flexible payment options. If you choose to work in the public service after your graduation, you will be eligible for a loan pardon.
Federal student loans are available at universities, colleges, and trade schools. They have lower fixed interest rates when you compare them to private loans. Students can choose to receive the loan directly or parents can also receive it. Consequently, there are two types of federal loans for students:
#1. Federal parent loans
#2. Federal student loans
There are four types of Federal Direct Loan Programs available:
- Direct consolidation loan
- PLUS loan
- Subsidized loans
- Unsubsidized loans
Related: Subsidized Vs Unsubsidized Student Loans: Which One Should You Go For?
Direct Consolidation Loan
A direct consolidation loan is the collection of all your eligible federal student loans into a single loan. The process requires a loan servicer to achieve.
PLUS Loan
PLUS loans are loans available for professional and graduate students. The PLUS plan also includes parents of undergraduate students who are dependent on their educational financing. As part of the requirement for a PLUS loan, a credit card check is essential. Borrowers that do not have a favorable credit history will need to provide additional requirements.
Subsidized Loans
Subsidized loans are loans set apart to support undergraduate students, who are in dire need of educational financing.
Unsubsidized Loans
Eligible graduates, undergraduates, and professional students can access an unsubsidized loan. The eligibility for this type of loan is not tied to financial needs.
Private Loans
Private financial institutions and banks provide private loans for students. There is no government backing for private loans. Credit houses, banks, and other financial institutions that do not offer federal loans usually provide private loans. Private loans sometimes are for debt consolidation and graduate school financing.
Private loans usually have a fixed interest rate and a monthly repayment. When you receive a personal loan, you know exactly the amount you will pay monthly. Since they do not have government backing, there is no forgiveness for loans. However, you will not repay a private loan till after your graduation and even later.
Other Types of Loans
Other types of loans that you can access as a student are:
Degree Specific Loans
The Degree Specific Loan is precisely for studies. It is available for undergraduates and graduate students. Some degree-specific loans are for only students in a particular field of studies. For example, Engineering, Pharmacy, Medicine, etc.
State Specific Loan Programs
Some private loans are accessible via particular state agencies. The eligibility criteria for this type of loan defer from one state to the other.
According to the income share agreement, your repayment comes from a percentage of your income over a fixed duration.Check out: Best Personal Finance Loans Of 2022
What is a Scholarship?
Today, there are scholarships available for almost all the fields of human endeavor. From sports to academic performance and talent, there are scholarships available for almost anything. It is a good way to get funds for your education. There are various types of scholarships available, therefore, it is essential to have an understanding of them before applying.
Below are some of the common types of scholarships that are prevalent lately:
#1. Scholarships for academic merit
Students with good GPAs, and ACT, or SAT scores are more likely to receive scholarships for academic merit. Students who show great academic prowess in their field of study may also get s scholarship. Other factors like the student’s impact through community service and extracurricular activities.
#2. Scholarship to carter for academic needs
Need-based scholarships are available for students with financial needs. Students can apply for this type of scholarship through FAFSA. At many institutions or colleges, the amount students need to pay for tuition depends on their financial income in the past year. Outstanding loans can also affect the tuition cost.
#3. Athletic Scholarships
There are athletic loans available for eligible students who are athletes or engage in one form of sports. Athletic scholarships often come with additional bonuses like extra cash for educational supplies, a free room, and aboard.
#4. Diversity Scholarships
To strengthen diversity, many universities offer scholarships to students from ethnicities with low representation on campus. For example, some universities offer scholarships specifically for women, African minority groups, Hispanics, Asians, etc.Related: Bank of America Student Loans: Refinancing and Alternatives.
How do I apply for a Student Loan?
There are basic requirements you need to meet before applying for a student loan. They include:
- Ensure that your program is eligible for a student loan
- Ensure that your academic institute is accredited by the Department of Education. You can check your school’s eligibility with the National Center for Education Statistics (NCES)
- Even if your school is not eligible for federal loans, you may still be able to access private loans
- Ensure that you carefully study the loan terms and conditions before you apply
What are the Things I Need to Apply for a Student Loan?
To apply for a student loan, you need to provide the following documents:
- Your social security number
- U.S citizenship or permanent residency
- Names and addresses of your previous and present academic institutions
- Proof of identity (International passport or government Identity card)
- Copy of current tax return or a 1040EZ form where applicable
- Dependent students will provide their parent’s most recent tax returns
How Do I apply for a Scholarship?
The process of applying for a scholarship may be more difficult and longer than applying for a loan. However, in the end, it is worth the stress when you get the scholarship. The effort and time you put into the scholarship will pay off when you receive free money.
Before applying for a scholarship, it is essential to find out what types of scholarships are available. Reach out to the school financial aid office and search the internet for useful tips on available scholarships and how to apply.
Also, you can learn from students that are currently on scholarships to learn more about how best to apply.
When applying for a scholarship, the following tips will guide you: Are you a start-up in need of finance? Read 10 Business Start-up Loans
#1. Ensure that you meet the eligibility requirements
Ensure that you meet the eligibility set by the scholarship sponsor before applying. Get all the documents and information you will require ready to avoid delays during your registration.
#2. Be comprehensive
Ensure all the information you provide is correct and current. If you have some doubt about a part of the application process, you can get help from the scholarship sponsors.
They should be able to guide you on the best way to apply for your scholarship. The correct application ensures a smooth process from application to review.
#3. Be precise
Ensure to be precise when writing about the importance of the scholarship to you. Ensure you go beyond why you should get the scholarship to tell the sponsors how it will benefit you specifically.
Tell them about your aspirations, visions, and goals and how the scholarship will help you achieve them.
#4. If you are applying for a second time, consider applying for a different scholarship
If we’re unlucky with your first application, try again, this time go for a different scholarship.
#5. Be determined
Many people often give up too easily after the first few unsuccessful trials. When applying for a scholarship, determination and a positive attitude are essential. When one application fails, try another one.
Always start your application on time. Don’t wait until the last minute to begin your application. The earlier you start, the better your chances.
#6. Ensure to check the deadline for every scholarship before you begin your application
Remember that every scholarship has a different deadline. Ensure that you are still within the deadline before sending off your application.
How Is a Student Loan Different from A Scholarship?
Student Loan Vs Scholarship
To answer the question how is a student loan different from a scholarship? Here are a few points that you should understand.
Both student loans and scholarships are ways of financing your education. However, as the name implies, a student loan is repayable to the offering body.
On the other hand, scholarships are free money that you receive on merit to assist your education. In the case of a scholarship, you will not have to pay it back.
Again, to answer the question: how is a student loan different from a scholarship? Let us consider the number of funds you are eligible to receive. In terms of a student loan, students can apply for any amount that they want. On the other hand, a scholarship is always tied to a specific amount, which the scholarship provider deems enough to cater to your education.
A student loan offers flexible amounts, while the scholarships provide the same amount for all beneficiaries. Since a student loan is flexible, students can apply for what they need. But in the case of a scholarship, you receive the amount that the scholarship provider ties to the award.
You can apply for a student loan anytime during your academic year. Scholarships on the other hand usually have a deadline for application. While any student is eligible to apply for a student loan, some scholarships are specific to certain kinds of persons.
The main criteria to apply for a student loan is that you must be a student. The process is less cumbersome. While the process of applying for a scholarship is usually long and tiring.Looking for a loan? Read: Best Personal Finance Loans
Afterthought: How is a Student Loan Different from a Scholarship?
If you are still asking the question how is a student loan different from a scholarship? Consider the repayment as the major difference between a student loan and a scholarship. You must repair the amount you receive from your student loans.
A scholarship is equal to free money for academic pursuits. Nobody will require you to pay back a scholarship.
Another significant difference between a student loan and a scholarship is in the loan amount. A student loan amount is flexible and different students can receive different amounts. Conversely, in the case of a scholarship, the amount you receive is usually a fixed amount.
FAQs
A student loan is a form of financial assistance that banks and educational institutions offer students.
Yes. Like other forms of loan, you will repay the money you receive from a student loan.
The major difference between a student loan and a scholarship is in the repayment. You repay any money you receive from a student loan, while you will not repay a scholarship fund.
You will pay for any federal student loan you receive when you start working.
Yes. You may be eligible for a loan pardon if you decide to work in the civil service after your education.
References
- Student major.com—How is a Student Loan Different from a Scholarship?
- Chipper.app—How is a Student Loan Different from a Scholarship?
- Cliffsnotes.com—The Differences between Scholarship and Student Loan Payouts
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