Scholarships versus Student Loans

During an internship this past winter at a college placement office at a high school in the Bronx, one of my tasks was to guide students through the great American financial aid maze. One question that surprised with the frequency with which it came up was what the difference was between scholarships and loans. Well, I thought, that's pretty easy to explain loans you pay back and scholarships you don't. But when I looked into it a bit more, I found that it was far more complicated than that. For that reason, here's a brief bit on scholarships vs. loans.

Scholarships are awards of access granted to individuals seeking education. The most common of these is financial, that is, you get a monetary award to pursue your education, but there are other types. According to good ol' Wikipedia, scholarships are classed as based on merit, need, sociology, institution and general. Merit based scholarships are granted for some special talent, usually academic or athletic. Need is for when one's financial situation necessitates an extra financial push. Sociology is granted when one belongs to a group or lives in a geographic region that is disadvantageous in an effort to create a more equal, educational playing field. Institutional means that the scholarship comes from a specific institution and finally general could be for an reason that hasn't been mentioned.

A loan is different from a scholarship in that the scholarship is an award, so you don't have to pay it back, whereas a loan is a kind of debt. With a loan, someone gives you money with an understanding that you will pay it back, usually in set installments in a set amount of time. Over that amount of time when you're paying back the loan, you are usually charged a cost called interest, which should be generally understood as a fee on a borrowed sum. When one doesn't pay back a loan according to the terms agreed upon at the time the loan is granted, it's called a default. This is bad news bears. You can get into a lot of trouble for this. One way that people deal with it is something called loan consolidation where instead of paying off heaps of different loans, you go to a bank or some other financial institution and they arrange that you pay one big regular installment, rather than several small ones, at a rate you can handle.

This is barely skimming the surface of scholarship and loan knowhow, but if you're interested or even just thinking of applying for some kind of financial aid, definitely do your homework and figure out something that works for you.