Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Aug 20, 2012

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The difference between federal student loans and grants is that loans must be repaid while grants are simply “awarded” funds that usually do not need to be repaid.

Much like scholarships, grants can come from the government, private organizations, or even colleges themselves. In contrast to this, federal student loans are only available through the government.

To be clear: private organizations do lend to students too, but that lending is not government-backed.

While grants may seem like “free money,” that assumption isn’t completely accurate. For instance, some awarded funds must be repaid if a borrower withdraws from their education during an enrollment period.

Federal student loans, on the other hand, must always be repaid—and with interest. However, borrowers may take comfort in the fact that the government is far more generous and merciful when it comes to late fees and interest rates than many private lenders are.

Like loans, grants are offered and awarded on the basis of financial need. These are only awarded should a borrower meet the necessary qualifications in the application process. Naturally, the competition for these free funds is fierce. In many ways, the application process for grants is similar to scholarships since applicants compete through grade-point averages (GPAs), written essays, and other attributes.

Both of these educational financing opportunities use the same application process—the Free Application for Federal Student Aid, which is more commonly known as the FAFSA.

One important note about qualifying for free funds is that most are only available to students that come from low-income households. Additionally, certain awarded funds, such as Pell grants, are only available for students entering undergraduate studies.

Student lending on the other hand is available at almost any income range. Additionally, financing is available for undergraduate, graduate, and professional-level applicants alike.

Just as is the case with federal student loans, there are several kinds of government grants available to borrowers.

Prospective borrowers and money recipients must keep in mind that if they fail to make educational progress toward their chosen degrees, they may be refused additional funds. Additionally, a previous record of imprisonment and drug-related convictions is likely to result in application ineligibility.