Understanding the Difference Between Grants and Loans

There are many ways that people try to finance their education. However, the two more popular routes that people take are through gov loans and grants. Each option can be beneficial to a person’s situation, that is why it is important to know grant and loan definitions and understand the difference between grant and loan assistance opportunities.

What are Grants and Loans?

Understanding Grants

This type of educational funding option is a type of free money that is awarded to qualifying students. These are provided based on specified criteria like:

– Showing financial need based on the information on your Free Application for Federal Student Aid (FAFSA)

– Maintaining a specified GPA score

– Proper citizenship status

– Having completed a high school education through either a diploma or GED

– Never being in default on a loan during the time of acceptance and use of a grant

There are numerous types of grants that can help with the cost of education like the Pell Grant, the TEACH Grant, the Federal Supplemental Educational Opportunity Grant, and more. Again, this type of assistance does not need to be repaid so this is a great beneficial option!

Understanding Loans

Loans are different than grants because this type of assistance needs to be repaid. These funds are paid back over a set period of time with interest. Typically, loans cover the amount of money left over after a student uses any scholarships and grants. A student can receive these loans either federally or through a private lender. There are many types of educational loans like:

– Unsubsidized Loans: The interest that builds up must be repaid by the borrower

– Subsidized Loans: The interest that builds up will be repaid by the government while the student is in school or in deferment.

– Direct PLUS Loans: The U.S. Department of Education has structured how these loans are set up.

– Direct Consolidation Loans: This loan combines multiple federal loans into one

Understand the Advantages and Disadvantages

There are pros and cons to both grants and loans.

Advantages of Grants:

– The money received does not need to be repaid at all

Advantages of Loans:

– There is more flexibility with options available because of the freedom of choice from the lender and loan agreement

– It is easier to qualify for a loan than a grant

However, just as there are advantages with grants and loans, there are also disadvantages.

Disadvantages of Grants:

– You will likely not receive enough money to cover the entire cost of education

– Qualifying and receiving a grant can be difficult

Disadvantages of Loans:

– You are responsible for the money you borrowed and even may be responsible for interest that builds on the loan


You know longer have to wonder, “what’s the difference between loans and grants?” Now that you know the grant and loan difference you can make a decision that is right for you. The likely best course of action will be to use both grants and loans to fund your education. See what grant assistance you may qualify for and any remaining costs can be covered using a loan. The type of loan that you will receive depends on what type of lender you wish to go to. If you are unsure of the best educational financial path, schools typically have a financial aid office that can provide more guidance!

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