When applying for financial aid through FAFSA, students can receive either grants or student loans. While both help cover education costs, they have significant differences. Here’s a breakdown of how they compare.
1. What Are FAFSA Grants?
Grants are free money awarded to students based on financial need. They do not need to be repaid, making them the most desirable form of financial aid.
Types of FAFSA Grants
- Federal Pell Grant: Available to undergraduate students with significant financial need. Maximum award for 2024-2025 is $7,395.
- Federal Supplemental Educational Opportunity Grant (FSEOG): Offers $100 to $4,000 per year for students with extreme financial need (availability varies by school).
- TEACH Grant: Provides up to $4,000 annually for students who commit to teaching in high-need fields and low-income schools.
- Iraq and Afghanistan Service Grant: Available to students who lost a parent or guardian in military service in Iraq or Afghanistan.
2. What Are FAFSA Student Loans?
Student loans are borrowed money that must be repaid with interest. They help cover education costs when grants and scholarships are insufficient.
Types of Federal Student Loans
- Direct Subsidized Loans: Need-based loans where the government covers interest while the student is in school.
- Direct Unsubsidized Loans: Available to all students, but interest accrues from the time the loan is disbursed.
- Direct PLUS Loans: Credit-based loans available to graduate students and parents of undergraduates.
3. Key Differences Between Grants and Loans
| Feature | Grants | Student Loans |
|---|---|---|
| Repayment Required? | No | Yes |
| Based on Need? | Yes | Subsidized loans: Yes, Unsubsidized loans: No |
| Interest Charges? | No | Yes (except for subsidized loans while in school) |
| Availability | Limited funds, priority for low-income students | More widely available |
4. Which One Should You Choose?
- Prioritize grants first since they don’t require repayment.
- Use student loans only if necessary, and aim for subsidized loans to reduce interest costs.
- Consider work-study and scholarships to further reduce borrowing.
Conclusion
Understanding the differences between FAFSA grants and student loans helps students make informed financial decisions. Always maximize grants and scholarships first, borrow only what is necessary, and explore other funding sources to minimize debt.
