What’s the Difference Between Scholarships, Loans, and Grants?

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Figuring out how to pay for college or vocational school can be a confusing process, especially if you’re the first member of your family to attend post-secondary school.

Don’t let the costs associated with your school of choice scare you away from applying.

Did you know there’s money available to you that you don’t have to pay back after graduation?

What is a grant?

This form of financial aid is essentially free money. You do not have to pay back a grant unless you withdraw from school, in which case you may need to pay back some or all of the funds.

A grant can be awarded by the federal government (Federal Pell Grant), colleges, technical schools, or other organizations.  Students receive grants based on financial need.

In most cases, a grant won’t cover the full cost of college, but it will lower your overall bill to make an education more affordable.

What is a scholarship?

Just like you don’t need to pay back a grant, you don’t need to pay back a scholarship unless you withdraw from school. In some instances, the scholarship terms will require you to fulfill specific requirements such as maintaining a certain GPA or playing on a sports team.

The primary difference between scholarships and grants is that scholarships aren’t needs-based. Instead, they’re awarded based on merit in academics, sports, or another special interest area.

Scholarships are available from many sources, including state governments, businesses, private organizations, and churches. You might also find scholarship opportunities with the college or trade school you plan to attend.

What is a student loan?

A loan is money borrowed from the federal government or a bank. When you take out a school loan, you sign a promissory note, a legal document that states you agree to pay back the money.

Most student loans have a six-month repayment grace period, so you likely won’t need to start paying back loans until six months after graduation or withdrawal. If you default on student loans, it will have a significant impact on your credit score, affecting your ability to obtain credit for purchases like a car or home. The government can also garnish your wages—subtract money from your paycheck—to pay back what you owe.

With an interest-bearing loan, you repay the loan amount plus additional interest. For example, when you repay the minimum monthly amount, you’ll rack up $4,025 in interest on a $20,000 student loan with a 3.76 percent interest rate.  At 6.8 percent interest, the extra cost on that loan jumps to $7,619.

But you have another option to pay for school: interest-free student loans. You pay back the lender only for the amount you’ve borrowed, saving hundreds or even thousands in interest costs over the life of the loan.

Lancaster Dollars for Higher Learning awards interest-free loans worth $1,700 each to qualified, legal residents of Lancaster County, PA. Six months after graduation or withdrawal, recipients repay the loan with $100 monthly automatic debits from a checking or savings account.

We’re accepting academic year 2017-18 applications through April 28, 2017. Apply for an interest-free student loan before it’s too late.