How Is a Student Loan Different From Scholarship?

It is the time of the year when new buds start blooming. College is the most exciting part of your life and career. You meet new people, learn new things, start making decisions for yourself and steer your life to achieve your dreams.

But when it comes to making decisions, choosing the financial aid to pay your college fees is the priority.

Many people get confused between student loans and scholarships. Do not worry, today we are going to explain to you how a student loan is different from a scholarship, its features, benefits, and how to apply for a student loan vs a scholarship.

Student Loan Vs Scholarship – Basic Difference

The basic difference between a student loan and a scholarship is that a Student loan is a financial aid which you have to pay back after a certain time with a low interest rate offered only to students in advance.

On the other hand, a scholarship is a need-based or merit base reward that is offered to few students only, and that particular amount is deducted from the whole college fee and reduces your total fee amount. Scholarships are something that you never have to pay back.

Student Loan– Student loan is a type of loan that is offered to students who need money to pursue higher studies but don’t have sufficient funds to pay the college or university fees such as tuition fees, books, and accommodation fees, etc.

Repayment terms of loans are decided in advance with a low interest rate that is offered especially to students to resume their studies. Students can apply for both full and partial student loans following their college fees.

One cannot take applications for more than the total amount of fee set by the college authorities. The amount has to be repaid with interest to the financial institutions such as federal and private banks once the study is finished and the student is earning a stable income.

Scholarship- A scholarship is a financial aid or reward offered to the students on a merit basis or need basis so that they can pursue their higher studies. The scholarship is a discount offered by government organizations, community groups, or the college itself for their students.

A scholarship is like a lotto that is awarded to a certain group of students to encourage them to get college degrees. Their selection is based on academic achievement, sports skills, leadership skills, and other talents.

The government also offers need-based scholarships to students who have performed exceptionally in their respective fields but falls below the poverty line and are unable to pay the tuition fee or college fee. The scholarship doesn’t cover the full amount of the fee. It is just a discount which students never have to pay back but they must pay the rest of the college fee themselves or by taking a student loan (if applicable).

We hope at least now by knowing their definitions you can understand “how a student loan is different from scholarship” but there are many other aspects and doubts that can raise questions so go ahead and read further.

How Is a Student Loan Different From Scholarship In Other Aspects?

Now you know both student loans and scholarships are financial aid offers to a student who is unable to pay their college fee. In both scenarios, students are receiving the money to pursue higher education from both federal and non-federal organizations.

However, besides their definition, some common aspects will help you know “how is a student loan different from a scholarship”. Here are those few aspects.

1. Disbursement

based on the disbursement of the money “how is a student loan different from the scholarship”.

Student loan

Banks directly pay the total amount of the college fee to the administration on a semester or annual basis. Breakdown of the disbursement of the loan amount is set initially by the borrower as per their requirement. Based on the type of student loan, some might even cover your expenses and that amount will transfer directly to the student’s account on a need basis.


As we told you, a Scholarship is a reward. Therefore, the disbursement of the money is based on who the scholarship provider is and if the amount will directly go to the college fund or the student.

If the college is the scholarship provider then the amount is directly paid from the finance department of the college to the student’s fee account, but if the scholarship is offered by some other organization then money might or might not go directly to the college. Many third-party scholarship providers offer scholarship money to the students in check as well.

2. Qualification

Let’s find out how a student loan is different from a scholarship based on qualification.

Student Loan

If you are applying for federal student loan funding then you have to meet the criteria set by the federal institutions and fill the FAFSA form. Only if you meet both eligibility and financial aid requirements then your loan will get approved.

On the other hand, if you are applying for a student loan from private institutions then you only need to convince them with your or your guardian’s credit score and that you can pay the loan amount as per the agreed repayment terms. Therefore mostly, everyone can apply for a student loan.


Eligibility criteria and qualifications for the scholarship program are set by the program and the sponsorer itself. Scholarships are of many types and everyone has different eligibility criteria. Mostly, if you meet the qualifications they will contact you themselves.

3. Restrictions

How is a student loan different from a scholarship based on its limitations and restrictions?
Student Loan

No matter from where you apply for a student loan from federal or private institutions, you cannot ask for more than your college fee and additional requirements. Moreover, you are bound to pay back that amount in full with interest within a set repayment period or there will be consequences.

You are not allowed to spend the loan amount to fulfil your personal needs, therefore, the financial institute transfers the money directly to the college account at the beginning of every semester.


When you become eligible for the scholarship they also come with their set of restrictions such as GPA score or other academic or sports qualifications and even if you win a scholarship then again you have to deal with tax issues that might compromise your loan eligibility or admission criteria for some colleges.

4. Application process

Let’s find out how student loans differ from scholarships based on the application process.

Student Loan

The basic difference between a student loan and a scholarship is you have to apply for a student loan yourself to get the financial aid to pursue your studies. If you are applying for federally funded loans then you have to fulfil the FAFSA application form and state your or your family’s annual income, but if you apply for private loans then they have their application form and process for the student loan candidates as well.


Most of the scholarship programs and sponsors find the eligible students themselves and state their eligibility requirements and application process. But if you want to apply for scholarship programs then there are hundreds of them available online, you can approach them as per your interest and find out their application process but mostly it is an eligibility criterion.

5. Types of student loan and scholarship

Now let’s discuss how a student loan is different from a scholarship based on their categories.

Student Loan

Student loans are mainly of 2 types:

1. Federal student, loans aided by the government and are super cheap

2. Private loans, aided by private institutions and can be rigid in terms of repayment policy, and interest rates might be higher than federal loans.


Scholarships are divided mainly into 4 types:

1. Academic scholarship
2. Sports Scholarship
3. Scholarship based on Demographics, for underprivileged kids
4. Scholarship based on the area of study

Can One Apply For Both Student Loan And Scholarship?

Well, those students who are awarded a scholarship can also apply for student loans but those who apply for student loans are not always qualified for scholarship programs. It is one of the biggest differences between a student loan and a scholarship.

Even for the students who have the scholarship and want to apply for federal student loans, matters can be complicated as the scholarship might change their eligibility criteria for student loans.

FAFSA generally calculates and approves the financial aid of every student based on their college fee requirement and family annual income. Having a scholarship can compromise your other financial aids and lower your eligibility.

Some scholarships are also rewarded as “First-dollar and Last-dollar scholarships”. If you have received the first dollar scholarship then getting other financial aid might become a complicated process for many reasons but if you have received the last dollar scholarship then you can apply for student loans for the partial amount and cover the rest of the expenses with your scholarship.

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