How to pay for college: Scholarships, grants and loans explained

4 minute read

What’s the difference between a scholarship and a grant anyway? Don’t get overwhelmed by the options — or the costs of college tuition — before your kid even hits campus. Here's everything you need to know about paying for college.

Your kid has done the work; they got the grades, they wrote the essays. They submitted (dozens of) college applications and took the SATs. But what now? Sure, the acceptance letters are rolling in, but how do you fund that college education? How do you pay for an entire post-secondary school career — or more than one, depending on how many kids you have?

Well, the answer isn’t straightforward, nor is it one-size-fits-all. And spoiler: Yes, you can definitely tell your kid they’re going to have to pay for their own college.

“The first step to paying for college is to fill out the FAFSA (Free Application for Federal Student Aid),” Joe DePaulo, a financial expert and the co-founder and CEO of College Ave Student Loans, tells Parents. “The office of Federal Student Aid provides up to $120 billion in grants, work-study and loans each year, and the FAFSA is the only way to access these funds, opportunities and loans. In addition, some merit-based scholarships require the FAFSA in order to be considered.”

But what’s the difference between a scholarship, a grant, and a loan anyway? Don’t get overwhelmed by the research and the costs before your kid even hits campus. Here’s everything you need to know about paying for college-including often-overlooked strategies.

What Is a scholarship?

Scholarships are financial awards, ones which do not accrue interest or need to be repaid. They can come from a variety of sources, since colleges and universities award scholarships themselves, but so do businesses and organizations. Local groups, such as the Boy Scouts, Girl Scouts, American Legion and Rotary Club, offer scholarships for a variety of reasons — including academic merit, financial need, or even specific skills such as sports or drama. Scholarship value also runs the gamut: “Awards can range from a few hundred dollars to the full cost of tuition,” DePaulo explains.

What Is a student loan?

Unlike a scholarship, “a loan is money you borrow and must pay back with interest,” according to Federal Student Aid (part of the office of the U.S. Department of Education). Emphasis on the paying-back-with-interest part. “When you receive a student loan," the Federal Student Aid site continues, “you are borrowing money to attend a college or career school ... [it is] an investment in your future. You should not be afraid to take out federal student loans, but you should be smart about it.” You have a legal obligation that makes you responsible for repaying the amount you borrow.

That said, there are numerous types of student loans, including:

  • Direct subsidized loans
  • Direct unsubsidized loans
  • Direct PLUS loans
  • Direct consolidation loans

What is a grant?

Like scholarships, grants are financial awards given to fund your education or a special project. “Grants are a type of gift aid,” DePaulo tells Parents. “They are often based on financial need and can come from the state or federal government, non-profit organizations and/or your school.”

Like scholarships, grants do not need to be repaid; they are monetary gifts. However, whereas some scholarships (from your child’s high school or clubs, for example) may be earned based on your child’s performance or skills, in order to be considered for a grant you do need to fill out the FAFSA first, as many grants use this form to determine your eligibility.

What are differences between scholarships, loans and grants?

There are numerous differences between scholarships, grants and student loans. The main differences are eligibility and repayment.


As previously mentioned, the eligibility requirements for scholarships vary; they can be merit- or interest-based, financially based, or awarded based on your field of study and/or career. Your child can apply for specific scholarships to attend medical school, law school or teacher’s college, for example. Grants, however, are almost always based on financial need. A loan is the easiest type of funding to obtain since most folks without existing credit problems are eligible — regardless of your child’s grades or your family’s financial status.


The loan catch is, of course, that you must pay the money back. Loans involve borrowed, not gifted, funds. They also accrue interest, although the amount of interest on student loans is (comparatively) quite low. “The interest rate on federal student loans is fixed and usually lower than that on private loans-and much lower than that on a credit card,” Financial Student Aid explains. Scholarships and grants, however, do not need to be paid back. The money you receive is yours to keep.

Are there other ways to pay for college?

In addition to scholarships, grants and student loans, there are numerous ways to pay for college. Work-study programs, for example, create part-time jobs for college students with financial needs. Savings can and should be used, particularly if you have a 529 Plan. Military families and international students can access financial aid specific to them. And private loans can be taken out, though they should be a last resort. You can even try to negotiate your child’s school tuition, or use life insurance to pay for college. The possibilities are wide and varied.

Choosing an affordable school can also help reduce your level of debt. Can your child attend a two-year college or community college and then transfer to the “dream school”? That would certainly save your family money in the long run. Another option is state schools, which tend to be cheaper than private institutions. They could also cut costs by living off-campus, particularly if that means living at home rent-free. Sure, it’ll postpone your empty-nest plans, but if it means the whole family emerges from the college experience debt-free, it might be well worth it.


This article was written by Kimberly Zapata from Parents and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to

This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. Please consult an independent legal or financial advisor for specific advice about your individual situation.