difference between financial aid and student loans

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The difference between financial aid and student loans is simple: financial aid is money you don’t have to pay back, while student loans are money you do.

Financial aid can come in a variety of forms, including grants, scholarships, work-study programs, and more. Grants are awarded based on your need—that is, how much money you don’t have to pay for college each year. Most grants are given out by the federal government or state governments, but some schools offer their own grants as well. Scholarships are similar to grants in that they’re awarded based on need; however, these tend to be awarded by individuals or organizations (rather than governments) who have a vested interest in helping students get an education. Work-study programs allow you to earn money for school by working part-time jobs on campus—this can help reduce your overall tuition costs significantly!

Student loans are another form of financing your education; however, unlike financial aid, these loans must be repaid after graduation. The amount of money you borrow varies from school to school; it may be based on your financial need or just how much money the school thinks you’ll need over four years of study time at that particular institution (or both!).

Financial Aid vs. Student Loans – What’s the Difference?

You may have heard the terms “financial aid” and “student loans” used interchangeably, but there is actually a big difference between the two. Financial aid comes in different forms, but it’s not always available to all students, while student loans are available to almost all students.

What is Financial Aid?

Financial aid is any form of assistance that helps students pay for college. It can come from the federal government, state governments, schools themselves (or their associated organizations), or private sources—like donors or alumni. Types of financial aid include grants (free money), scholarships (money based on merit), work-study programs (work-related help), and loans (money borrowed from a lender).

What are Student Loans?

Student loans are money borrowed from a lender with interest attached that must be repaid once you leave school or graduate—usually through monthly payments for up to 10 years after graduation. There are different types of student loans; some have lower interest rates than others and some have slightly more flexible repayment terms than others. However, no matter which type of loan you choose, you will still owe money after graduating unless your employer pays off some or all of it on your behalf.

Similarities and Differences Between Financial Aid vs Student Loans

Figuring out how to pay for school can be stressful, so it’s important to compare financial aid vs student loans so that you can reduce your financial burden as much as possible and find out what’s right for you.

When college financial aid isn’t enough, people use federal or private student loans to help cover costs. Private student loans can also close gaps between what you qualify for and how much you need. We’ll compare student loans vs financial aid and explore some features that can help you determine what makes the most sense for your financial situation.

What Is Financial Aid?

Financial aid is funding that is available to students to help make college or career school more affordable. College financial aid comes in several forms and helps students pay for higher education expenses, including tuition and fees, room and board, books and supplies and transportation.

Here are several types of financial aid available to students:

•   Scholarships: A scholarship is a form of financial aid that’s awarded to students to help pay for school. Scholarships are typically awarded based on academic or athletic achievement, community involvement, job experience, field of study, financial need and more.

•   Grants: A grant is a form of financial aid that doesn’t have to be repaid and is generally based on financial need.

•   Federal work-study programs: The federal work-study program offers funds for part-time employment to help eligible college students in financial need.

•   Federal student loans: Student loans are borrowed money from the federal government or private lenders to help pay for college.

Financial aid can come from federal, state, school, and private sources. Federal Student Aid, a part of the U.S. Department of Education, is the largest provider of student financial aid in the U.S. Federal aid is distributed to 13 million students each year, totaling $120 billion.

Recommended: Am I Eligible for Work-Study?

What Are Student Loans?

A student loan is money borrowed from the government or a private lender to help pay for school with the expectation that you will pay it back. Like most other types of loans, the amount borrowed will accrue interest over time. Student loans can be used on school-related expenses including tuition, room and board, and other school supplies.

Loans are different from grants or scholarships and it’s essential that you understand the differences between financial aid vs student loans. If you receive a grant or a scholarship, you typically don’t have to pay that money back. Student loans are also different from work-study programs, where students in financial need to work part-time jobs to earn money to help pay for school.

It’s common for college students to take out student loans to finance their education, but you should first compare federal vs private student loans. Federal student loans offer some borrower benefits that make them preferable to private student loans.

Federal Student Loans

Federal student loans are loans that are backed by the U.S. government. Terms and conditions of the loan are set by the federal government and include several benefits, such as fixed interest rates and income-driven repayment plans. To qualify, students must fill out the Free Application for Federal Student Aid (FAFSA®) every year that they want to receive federal student loans. The FAFSA also allows students to apply for federal aid including scholarships, grants, and work-study. Colleges may also use the information provided on the FAFSA to determine school-specific aid awards.

There are four types of federal student loans available:

•  Direct Subsidized Loans are student loans for undergrads in financial need to help pay for expenses related to higher education. The government covers the accruing interest on this type of loan while the borrower is enrolled in school at least half-time and during the loan’s six month grace period after graduation.

•  Direct Unsubsidized Loans are made to eligible undergraduate, graduate and professional students. Eligibility is not based on financial need. Borrowers are responsible for all accrued interest on this type of loan.

•  Direct PLUS Loans are made to graduate or professional students, known as the Grad PLUS loan, or parents of dependent undergraduate students, known as the Parent PLUS loan. These loans are meant to help pay for education expenses not covered by other financial aid.

•  Direct Consolidation Loans allow students to combine all eligible federal student loans into a single loan.

Private Student Loans

Private student loans can also be used to help pay for college. Private student loans are offered by banks, credit unions, and online lenders. Understanding how private student loans work is essential before borrowing. While federal student loans are generally the first option potential student borrowers pursue, private student loans may be an option to consider for borrowers who are trying to pay for college without financial aid. Unlike federal student loans, which have terms and interest rates set by the federal government, private lenders set their own and conditions that vary from lender to lender.

Private student loans are also credit-based. The lender will review an applicant’s credit history, income and debt, and whether they’re enrolled in a qualified educational program. Applicants who may lack credit history, or have a less than glowing credit score may consider applying with a cosigner to improve their chances of approval.

Unlike federal student loans, interest rates can be fixed or variable. A fixed interest rate stays the same for the life of the loan but a variable interest rate may change. The interest rate a borrower qualifies for will also depend on the lender as well as the borrower’s creditworthiness.

Not all private student loans are the same. Because of this, it’s important that you understand the annual percentage rates (APRs) and repayment terms before taking on the loan.

What's the Difference Between Student Loans, Education Grants, and  Scholarships? | Walden University

Financial Aid vs Student Loans Compared

When comparing financial aid vs student loans, you need to be aware of the similarities and differences between financial aid vs student loans. Here are some key comparisons.

They can both be used to help fund education-related expenses.Financial aid doesn’t typically need to be repaid. Student loans must be repaid within a given loan term, plus interest.
FAFSA® must be filled out for financial aid and federal student loans.Financial aid and student loans may be paid out differently.
Financial aid and student loans have certain eligibility requirements.Some financial aid, like scholarships, may be awarded based on merit. Federal student loans can be both need and non-need based. Lending criteria on private student loans is determined by the lender.


Financial aid and student loans are both used to help fund education-related expenses, like tuition, room and board, books and classroom supplies, and transportation. Financial aid and student loans backed by the federal government also require students to fill out FAFSA® for each year that they want to receive federal student loans or federal financial aid. Financial aid and student loans also have some sort of eligibility requirements, whether that be based on financial need, merit or creditworthiness.


The biggest difference between financial aid vs student loans is whether or not you need to pay back the money you are given to help pay for college. Financial aid is either money that doesn’t need to be paid back, known as gift aid, or earned through a federal work-study program.

Student loans must be repaid within a given loan term. Not only are students expected to pay back student loans, but there’s typically interest that accrues over the life of the loan.

There may also be differences in how financial aid and student loans are paid out to the student. Private student loans are usually paid in one lump sum at the start of each school year or semester; however, you may not receive the full amount of a scholarship award upfront. Government grants and loans are generally split into at least two disbursements and If you have a work-study job, you’ll be paid at least once a month.

Some private student loans may also come with greater flexibility and offer more money than financial aid.

Recommended: Gift Aid vs Self Help Aid For College

What Are The Top 3 Differences Between Financial Aid And Scholarships? – FA  Solutions Financial Aid Consulting

Pros and Cons of Financial Aid

Pros of Financial Aid

•  Money received through financial aid does not typically have to be repaid.

•  Potential to decrease future debt by minimizing the amount you have to borrow.

•  Opens up new opportunities for many students to attend a better school than they could without financial assistance.

•  Allows students to focus on their education instead of worrying about paying tuition.

Cons of Financial Aid

•  Most financial aid does not cover all school-related costs.

•  Scholarships, grants, and work-study programs can be highly competitive.

•  You may have to maintain certain standards to meet eligibility requirements during each semester.

•  There’s less flexibility on how you can spend funds.

Pros and Cons of Student Loans

Pros of Student Loans

•  Student loans offer financial support for those who would otherwise be unable to attend college.

•  You don’t need any credit history for federal student loans and you can use a creditworthy cosigner for private student loans.

•  Student loans can be used for things beyond tuition, room and board, and books.

•  Paying off student loans may help you build credit.

Cons of Student Loans

•  You start off with debt after graduating from college.

•  Student loans can be expensive.

•  Defaulting on student loans can negatively impact your credit score.

•  If you borrowed a private student loan, the interest rate may be variable.

Private Student Loans from SoFi

Financial aid and student loans financially support students by relieving some of the financial burden that’s often associated with higher education. When financial aid isn’t enough, students may seek private student loans to help cover their college costs. Although private student loans don’t come with as many perks as federal student loans, and are generally borrowers only as a last resort option as a result, they can help fill in the gaps between what you qualify for and how much you need.

Private student loans from SoFi can help serve as a supplement to federal aid. SoFi student loans offer plenty of benefits, such as no origination fees, no application fees, no late fees, and no insufficient fund fees. You can find out if you pre-qualify within minutes.

Learn more about private student loan options available with SoFi.

Learn More


Does FAFSA loan or grant money?

FAFSA is an application that you fill out in order to determine your eligibility for receiving a federal loan or federal student aid such as grants and scholarships. While a federal student loan is borrowed money that must be repaid after graduation, funds received through grants, scholarships, and work-study programs do not need to be repaid.

Can you get financial aid and student loans at the same time?

Yes. If you apply for financial aid at your school, you may be offered loans as part of your school’s financial aid offer to help cover the remaining costs.

Do scholarships count as financial aid?

Yes, scholarships are a type of financial aid that is considered gift aid and typically do not have to be repaid.

How To Ask for More Financial Aid for College (and Hopefully Get It) | Student  Loan Hero

When it comes to financial aid and student loans, there are a lot of similarities. Both types of aid are intended to help students pay for their education, and they both have similar eligibility requirements. But they do have some key differences.

Financial aid is typically awarded based on need, while student loans are awarded based on merit and ability to repay. This means that financial aid is often only available to those who demonstrate true financial need, but it also means that loans may not be necessary for all applicants.

Additionally, financial aid can come in the form of grants or scholarships, which do not need to be repaid; however, student loans must always be repaid with interest after graduation. Also, financial aid usually has a time limit on how long it lasts (typically six months or one year), whereas student loans may last throughout your entire college career.

Student loans tend to have lower interest rates than other types of loans because they are federally backed by the government; however, this does not mean that they are free—you will still need money upfront in order to pay them off later!

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