Grants vs. Loans: What’s the Difference?


One of the most common misconceptions about financial aid is that financial aid is just grants. Phil Olsen, the Vice President of Financial Aid at AIU clarifies the differences in our recent Serious Talk Webinar on Debunking the Myths of Financial Aid. Watch the video below.

Federal student aid also includes student loans. So what are the differences between grants and student loans? The big difference: accrued interest and repayment.

WATCH: AIU Serious Talk - Types of Financial Aid

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Let’s explain:

Grants: When you receive a federal educational grant, most often you don’t have to pay it back. Grants are free money from the government (or other privately funded sources) to be used for your education expenses. The government makes Federal Pell Grants and Federal Supplemental Educational Opportunity Grants available to needy students if they qualify.

Loans: When you take out a federal student loan, you do so with the understanding that you must pay it back. Student borrowers who take out Federal Direct Stafford Loans sign what’s called a Master Promissory Note, in which they promise to pay back the loan along with interest and other fees. There are two types of Federal Direct Stafford Loans that students may be eligible to receive:

  • Subsidized: The government pays the accrued loan interest while you are in school, and during your six month grace period after you graduate or leave school. You also don’t have to start making payments until the end of your grace period.
  • Unsubsidized: Interest begins accruing as soon as you take out the loan, and you are responsible for any interest that accrues while you are in school. You can defer payment of the interest and accrued principle until up to six months after you graduate.

WATCH FULL WEBINAR: Debunking the Myths of Financial Aid

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Looking for more resources? View our Grants and Scholarships Guide →