Financial Aid: Scholarships versus Student Loans

So you're trying to pay for college, and your two main options are financial aid and scholarships, but you don’t understand the difference. The simple way to describe it is that the latter consists of free money awarded to a student for a specific reason other than financial hardship. Scholarships come in all shapes and sizes. Some are given out by the school you are attending, some are awarded by private organizations, and some are the result of various competitions. How they relate to the need-based financial aid package you receive can vary.

Applying for Money

Every student should fill out a FAFSA to see which types of aid they qualify for. There's a new FAFSA every January 1st, and it asks you which schools you are applying to so it can let them know how much you should receive in federal grants, student loans, and work study. Scholarships are an entirely separate issue. You do not need to fill out a FAFSA to be eligible for scholarships, and they will come with their own deadlines and application procedures. Usually, the school will make you aware of their scholarship programs, and it's up to you to search online for private scholarships to supplement your aid.

How Aid is Awarded

When a school looks at your completed FAFSA, they know how much money the government says you need to attend their school. It doesn't necessarily mean you'll receive that much because many schools have limited grant and work study funds. The first thing you are awarded will be grants. The Federal Pell Grant is for students with severe financial need, and there is a maximum yearly limit of around $5,700. Some schools also offer their own institutional grants, but those are usually "last dollar" awards, for when all other options have been used up. You can receive work study awards, which qualify you to take certain jobs on campus and earn a wage that you can use to cover costs. And lastly, there are subsidized and unsubsidized student loans.

The Effect of Scholarships on Aid

Most students want to know if the fact that they are awarded institutional or private scholarships will affect how much aid they receive. The short answer is typically no, unless your college or university has unique rules. Grants are based on financial hardship, so a student will receive the grant money they are entitled to regardless of scholarship money. Usually, when schools see a reduction in need, the first thing they will cut is the offer of student loans. That's good news for you because loans simply cause you to accumulate debt.

In short, don't be afraid to fill out both the FAFSA and any scholarship applications you can get your hands on. Both will be highly beneficial when it comes to paying for school, and you never know how much money is out there until you really start to explore.