What Is the Difference Between a Grant and a Loan?

By Mick Travis , last updated January 9, 2012

Grants are both public and private forms of financial assistance which do not require the recipient of the grant to repay the money received. In contrast, a loan is a form of financial assistance in which the recipient is considered a borrower, and is thus subject to repayment terms determined by the lender, which include terms of interest as well as deadlines and penalties for late payments. In terms of student financial aid, it isn't difficult to see how grants are the better deal, though the current cost of a collegiate education, coupled with the comparatively low amounts of money offered by most grants, make hybrid financial aid packages consisting of public and private loans and grants very common.

About Student Financial Aid Grants

The most well-known Federal student financial aid grant is the Pell Grant, which is awarded to undergraduate students (and some postgraduate students) based more on financial need rather than academic or extracurricular accomplishment. The amount of Pell Grant money awarded to a prospective college student varies based in the students level of personal income/savings, the students enrollment status (e.g. full or part time), and the cost of the tuition at the targeted school. The only form that needs to be filled out in order to qualify for the Pell Grant is the FAFSA form, which is required of all prospective college students in order to receive any sort of financial aid, be it a grant or a loan.

Private grants come with specialized requirements and application procedures. Requirements for receiving private grants are contingent upon specific criteria set forth by the grant issuer. For example, a student applying for a private religious studies grant might have to not only apply to a faith-affiliated university and major in religious studies to be eligible for the hypothetical grant, but may also have to be an active youth member of their local church to qualify. A private arts-based grant might require that its' applicants not only major in a specific course of art study, but also have a portfolio of their work which shows potential.

Because grants are essentially tax exempt "free money," grant applicants should be aware that competition for collegiate grants is fierce.

About Student Loans

Student loans, whether they are offered by the government or by a private lending institution, are very different than financial aid grants in that the money must be paid back with interest within a set period of time, and in so far as eligibility is not generally an issue. Student loans are thus fairly easy to secure, certainly in comparison to public and private grants, but they can be enormously difficult to pay back, with the original loan amount quite capable of ballooning into an insurmountable debt due to interest rates and late fees.

As mentioned earlier in the article, the most common financial aid packages are currently those which combine a trio of Federally-issued student loans, private lending institution student loans, and any public and/or private grant funds.

Related Articles
Financial aid is the cornerstone of making it through a college education, and understanding the difference between school loans and grants is important. Without ...
The key similarity between scholarships and grants is that they’re both money that is given to students in order to help them pay for their tuition without ...
Scholarships and grants are both excellent sources of free money for financing an education, but understanding the differences between the two of them is useful ...
About -  Privacy -  AskEraser  -  Careers -  Ask Blog -  Q&A -  Mobile -  Help -  Feedback © 2014 Ask.com