Financial aid includes student loans and scholarships. However, there are significant differences between the two, as well as variations in how an applicant can qualify for student loans and scholarships.

In this article, we will examine the workings of student loans and scholarships for the sake of deciding which option is best for you. Student loans are funds that you borrow and must repay after graduating within a specified timeframe.

On the other hand, scholarships are ordinarily awarded based on merit, such as excellent academic performance, and do not require repayment. The money borrowed through student loans is used to cover various expenses related to education and personal needs.

These expenses may include school fees, textbooks, cost of living (such as food, clothing, and toiletries), and accommodation. Student loans can be obtained from government agencies, private lenders, or educational institutions.

There are two main types of student loans:

• Federal Student Loan: This is a loan generally provided by the government, and it offers benefits such as lower interest rates and flexible repayment options. Types of federal loans are as follows:

1. Direct Subsidized Loan: This is a kind of loan made available for undergraduates experiencing financial challenges. The government pays the interest on that loan while the student is studying in school.
2. Direct Unsubsidized Loan: This loan is applicable for both undergraduate and graduate students, regardless of financial needs.
3. Direct Plus Loan: It is a loan available to graduate students and parents of dependent undergraduate students. It has a higher interest rate than subsidized and unsubsidized loans. It also requires credit checks.

• Private Student Loan: This is a loan offered by banks, credit unions, and other financial institutions. It is usually used as a supplement to federal loans when the student’s federal loan limit is insufficient.

Let’s take a very close look at those considerations for private loan

1. Higher interest rate: Private loan generally has a higher interest rate than any of the federal loans.
2. Variable interest rate: A private loan could have variable interest rates, which can fluctuate over time, making it difficult to predict future payments.
3. Credit check: Private lenders typically require a credit check, which can be challenging for students with limited credit history.

Step-by-Step Guide for Student Loan Application and Approval:

Students apply for student loans through the Fee Application for Federal Student Aid for federal loans or directly through Private Lenders for private loans. The application process involves providing personal and financial information including income, assets, and credit history.

Loan Disbursement: Once the loan application is approved, the funds are disbursed directly to the educational institution to cover tuition fees and other expenses. Any remaining funds are sent to the student as a disbursement check.

Repayment Period: Repayment of student loans typically begins six months after the student graduates.

Scholarships serve as a beacon of hope for many students, offering not only financial assistance but also the opportunity to fulfil their academic goals.

There are two types of scholarships:

1. Merit-based Scholarships: These scholarships are awarded to students based on their superior achievements in academia and other similar fields. They aim to recognize the hard work and dedication of students, motivating others to do the same. Merit-based scholarships attract talent and the brightest minds among students, leading to a competitive and high-performing learning environment.
2. Need-based scholarships: These scholarships help deserving students with low income get a fair shot at higher education regardless of their economic background. Demonstrating a low income is a mandatory condition, but such scholarships often have second selection criteria, which can be one of the merit-based categories. Need-based scholarships aim to support economically disadvantaged students and help break the cycle of poverty; offering recipients a chance to improve their lives. Scholarships, unlike student loans, don’t need repayment.

Scholarships are often awarded based on your achievements or talents, and need-based scholarships come with specific standards. For instance, you might need a certain GPA (Grade Point Average), involvement in community service, or a commitment to continue studying in a particular field after receiving the award.

While student loans and scholarships all aim to aid students in their educational journey, they have distinct characteristics that differentiate them. These are known as follows:

• Similarities Purpose: In essence, student loans and scholarships are designed to assist students in covering educational expenses so that their financial situation doesn’t stop them from getting an education certification. Rigorous application: Regardless of the type, you need to meet specific criteria to qualify. Applying for financial aid as a student is often a thorough and rigorous process.
• Differences in Repayment or No Repayment: This is the fundamental difference between student loans and scholarships in which a loan must be repaid, while a scholarship is a non-repayable financial award.
• The Goal Behind the Money: The rationale behind the award differs; while a scholarship is primarily given based on merit and receiving a loan depends on your ability or potential to repay it.
• Duration and Renewal of Student Loans and Scholarships: The scholarships are mainly a one-time award or require periodic renewals, while a loan has a fixed term for repayment, often post-graduation.

How do you decide what’s best for you between student loans and scholarships?

Scholarships are the best type of financial aid because they do not need to be repaid. Student loans should be a last resort, as they can be a burden to repay after graduation. However, student loans can be a necessary option for some students.

It usually happens, if you don’t meet the eligibility criteria. A scholarship of any type won’t make you a debtor and every money spent for you to achieve a graduate/postgraduate degree or a certificate course for your educational development is free.

Taking a right decision on student loans and scholarships is within you

You may decide to seek for a complete scholarship rather than requesting for a loan, because some countries have the capacity of sponsoring interested and qualified students or applicants into pursuing a career full-time as an undergraduate or a postgraduate. Being a beneficiary of a scholarship there is no challenge of trying to repay the money borrowed for your studies. It is difficult to get a job in some parts of the world immediately after graduation and if you have obtained a student loan to study, the interest will be summing up according to the percentage interest. The agreed duration for payment could expire before you gain an employment.

Socio Economic factors affecting student loans and scholarships 

Numerous factors can affect a person’s academic pursuit or choice of a career, even though financial challenge is a critical condition most people are experiencing. We won’t be discussing these socio-economic factors comprehensively, but taking into account the three vital ones are social status, geographic location, and access to education.

A student loan is to be repaid hereafter, while a scholarship is a free offer. However, both student loans and scholarships may undergo bureaucracy during the processing of applications especially in many developing countries. I think is wiser to search for a scholarship instead of trying to obtain a student loan.

To prevent starting your life with debt, it is advisable to opt for a scholarship. When a debtor is trying to pay off a student loan, he or she is putting off or forgoing other goals in life. In some areas, student loans can prevent you from buying a property such as a house.

A default to pay on time may affect an applicant’s eligibility for more federal student aid. Having a debt challenge can likely cause health issues of anxiety and depression, which will negatively affect your mental health. Another negative effect of a student loan is a challenge to set aside money for emergency.

Conclusion

When you carefully review student loans and scholarships, you will discover that the student under a scholarship has a lesser financial burden during and after his or her course of study.

The important areas [tuition, books and housing] of education are covered, a very good sign of financial relief, and you don’t need to repay after the completion of your education. The processing of student loans and scholarships takes time, but in the end, the most valuable and preferable one is a scholarship.

You must take your studies very seriously when on student loans and scholarships. Scholarship funding may be stopped, if you are not excelling academically. The benefactor can decide to have access to your grades for assessment whether to continue or discontinue a student.

The possibility of a lender not bothering you since you are going to repay the borrowed funds. There is no reason to be lazy or an unserious student with student loans and scholarships.

Note that giving back to your society as someone who benefited from a scholarship can be done by proffering solutions through your time, skills and making donations of items and money in accordance with your ability.

In so doing it shows that you have a sense of purpose and you are fulfilling a lifestyle that will enhance personal growth in the lives of many people. You are going to execute these exercises without being tied to a yoke of debt.