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What’s the Difference Between a Loan and a Grant for Students?

By Saurin Holdheim - NextGenVest Director - Palo Alto High School

Glad you asked! This is somthing that is relevant for students as they head into college application season. Be aware of your options to make the best decision! 

Loans

A loan, copying straight from the Merriam-Webster dictionary, is “an amount of money that is given to someone for a period of time with a promise that it will be paid back : an amount of money that is borrowed.” When it comes to getting a loan, there is generally a rate of interest associated with it; that is, the longer you wait before paying it back, the more you have to pay back.

The word loan typically has negative connotations nowadays, due to the crippling debt that many students enter into in order to attend college and further their education. Many people take out loans in order to pay for tuition, and years after their graduation have that debt hanging over their heads. However, loans aren’t always bad - they have also been utilized to start massively successful businesses such as Starbucks, Dell, and even Domino’s, and can be very useful assets to know about.

Grants

Grants, while similar to loans in some ways, are actually very different things. The definition of a grant, this time from the Cambridge Online Dictionary (woohoo, variety) is the following: “a ​sum of ​money given by the ​government, a ​university, or a ​privateorganization to another ​organization or ​person for a ​specialpurpose.” The key word to look at here is given; you don’t need to pay back grants, they’re yours. However, you do have to use it for the purpose it was given to you - not to install a jacuzzi in your brand new stretch limo, no matter how tempting it may be.

“You don’t need to pay back grants, they’re yours.”

The most common grants students will have access to are financial aid grants (usually need-based) and scholarships (generally merit-based) when applying to college. These seem much more helpful for covering tuition than loans, as you will not be starting from behind when you begin your career, but they aren’t perfect. There are usually either not enough grants for everyone who needs them, or the grants given are not large enough to cover all of a student’s needs - either way, this still results in loans being taken out, and youths entering into debt.

Other grants you may often hear about are research grants given to scientists in order to support their work. These are often awarded to scientists by foundations and programs created to support science in specific fields, or even by the government.

Loans

Generally larger than grants, and so more helpful in the short term. However, must be paid back with a rate of interest - the more money you accept the longer it may take you to pay it back, and the more it will cost you. You must be strategic and realistic when taking out a loan, as in the long term it could have huge detrimental impacts, but be careful not to discount the resource just because of the negative connotations associated with the term today.

Grants

Usually not as large as loans can be, but do not have to be paid back at all. Commonly seen in the form of scholarships or need-based tuition grants, or as research grants for scientists in specific fields. Grants are, in most cases, less risk for less reward.

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