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In the wake of the recent Supreme Court decision denying student loan relief, it is now more important than ever for students to understand their education finance options. 

Student loans have always been the easiest way to secure access to higher education. However, we have seen that loans can cause financial stress and hardship for borrowers once they graduate. It is crucial that borrowers are aware of the potential pitfalls of student loans. 

While loans are a great way to fund college, it is highly recommended that students explore all other options before taking out large sums of money for education. 

One alternative? Grants. 

So how do grants differ from student loans?

What is a Student Loan?

Student loans are borrowed funds designed to help students finance their education. Student loans can come in various forms, but all need to be paid back over a specified time period and with interest. 

• Federal Direct Subsidized Loans – Available to undergraduate students with demonstrated financial need. The government pays the interest on the loan while the borrower is in school, during the grace period, and deferment periods.
• Federal Direct Unsubsidized Loans – Available to undergraduate and graduate students regardless of financial need. Unlike subsidized loans, the borrower is responsible for paying the interest throughout the life of the loan.
• Federal Perkins Loans – Awarded to undergraduate and graduate students with exceptional financial need. The interest rate is fixed, and the loan is administered by the school.
• Federal PLUS Loans – Available to graduate students and parents of dependent undergraduate students. They are not based on financial need, and borrowers must undergo a credit check.
• Private Student Loans – Offered by private financial institutions such as banks, credit unions, and online lenders. They are available to students who need additional funding beyond what federal loans provide. Private loans often have varying interest rates and repayment terms.
• Institutional Loans – Some colleges and universities offer their own loan programs to students. These loans are often need-based and have specific terms and repayment options.

While student loans can provide immediate financial support, it is important to understand the associated advantages and disadvantages:

Student loans provide direct access to funds. This enables students to enroll for classes and pay for other expenses quickly. Most loans have flexible payment options as well. The payments are delayed until after completing school, which also allows students to save money while attending college. 

The issue with student loans is that the borrower accumulates debt.

“Debt is increasingly common,” writes Amy Novotney for the American Psychological Association. “Many grad students feel isolated by the same of being in the red, and that keeps them from having honest conversations about it.”

Student loans put you immediately behind the curve, even prior to getting your first job thanks to the degree you just earned. 

While payments can normally be delayed with student loans, this can cause other issues such as accumulation of interest. 

With most types of student loans, both federal and private, you’re not required to pay any principal or interest until you graduate, leave school, or drop below half-time enrollment,” writes Andrew Dunn for Credible. “However, with private loans and some types of federal student loans, interest begins to accrue as soon as the loan money is disbursed to your school.”

So, even in deferment, your overall balance will likely increase. 

Grants are Essentially Free Money for Education

Grants are essentially free money for education. They are financial awards given to students to spend on college, without the expectation of being paid back. 

Grants are awarded based on various criteria, such as academic achievement, financial need, or specific demographics. Here are their key advantages:

There are plenty of advantages to grants such as:

• No repayment – Unlike student loans, grants do not require repayment, providing students with a debt-free way to finance their education.
• Financial Relief – Grants can significantly alleviate the financial burden of tuition fees, textbooks, and other educational expenses.
• Increased Accessibility: Grants are available from a variety of sources, including government entities, educational institutions, private organizations, and foundations. This broad range of opportunities makes grants accessible to students with diverse backgrounds and circumstances.

Despite their differences, grants and student loans share certain similarities.

Both focus on funding education and involve an application process. There are also funding limits for each so borrowers need to be aware of how much they need for school prior to applying. 

A key difference between the two is that while student loans are there to help you attend college, grants are often given to help you succeed in college. 

Here is what I mean. 

Institutions that provide grants want to show success of their gift giving. As such, they often offer mentoring to recipients to help them succeed. 

“Our mentors are tasked with providing the students with guidance and support throughout the student’s college years.” says Donato Tramuto of the TramutoPorter Foundation. “The relationship Tramuto scholars establish with their mentor helps develop connections and networks necessary for the students to meet their ultimate career goals beyond college.”

Final Thoughts:

When considering how to finance higher education, it is vital to weigh the advantages and disadvantages of grants and student loans. 

Grants provide students with an opportunity to secure funding without the burden of repayment, easing financial stress and potentially reducing long-term debt. On the other hand, student loans offer immediate access to funds but come with the responsibility of repayment, potentially leading to financial challenges after graduation.

Ultimately, the choice between grants and student loans depends on individual circumstances and priorities. Students are encouraged to explore all available options, seek guidance from financial aid offices, and consider their future financial prospects when making informed decisions about funding their education.