The Difference Between Federal Student Loans And Grants

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All About Financial Aid Types Of Financial Aid

This post is part of the first chapter in Diane’s series “All About Financial Aid.”

Whether you are a new student applying for financial aid for the first time, or an experienced college student who has applied for federal financial aid many times before, knowing the details of the kinds of aid you are seeking is important.

When you complete the FAFSA, you apply for financial aid in the form of grants and loans from the federal government. You don’t have to accept these awards (meaning, if you are offered a loan after you complete the FAFSA, you don’t have to take that loan), but it’s helpful to understand the differences between federal grants and loans to better understand what you are being offered.



Grants are a type of financial aid where money that does not need to be repaid is awarded to you. The federal government awards grants, but many other organizations award grants as well. When it comes to the federal government’s grants, you must meet their minimum eligibility requirements in order to be awarded a federal grant. Many federal grants are awarded based on financial need.


Loans are a type of financial aid where you have an obligation to pay back the money given to you plus interest. (Interest is the cost of borrowing the money. It’s like saying to a friend, “I’ll lend you $100 for two months, but I want $110 back.” The $10 is the interest you charged as a fee for lending the money).

The federal government offers several loan options: subsidized Stafford loans, unsubsidized Stafford loans, Perkins loans, and Grad PLUS loans, Parent PLUS loans, as well as loans for certain health professions students. While there are subtle differences on what makes you eligible for each type of loan, there is a big difference between an unsubsidized loan and a subsidized loan.

That difference is: Subsidized loans DO NOT accumulate interest while you are enrolled at least half-time in a post-secondary program, whereas unsubsidized loans DO accumulate interest. Subsidized loans (loans that don’t accumulate interest while you are in school) are offered to students who demonstrate financial need. Unsubsidized loans (loans that accumulate interest even while you are in school) are available to students regardless of their financial circumstances.

Comparing Federal Grants To Federal Loans
Federal Unsubsidized Loans Federal Subsidized Loans Federal Grants
Must Be Paid Back X X
Accumulates Interest While Enrolled In College X
You Must Demonstrate Financial Need X X
Must Complete The FAFSA Each Year To Renew X X X

While there are clear differences between federal grants and loans, it’s important to note that neither type is “better” than the other. Sure, we would all rather receive grant money that does not need to be paid back, but accepting a reasonable subsidized or unsubsidized loan could make all the difference when it comes to being able to afford things like books, room and board, etc. What matters most is that you fully understand what accepting these awards means to you—and that you are ready to make the necessary steps to meet those requirements.

For more information on federal grants and loans, check out our short, informative video on Federal Student Financial Aid Programs.

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