Every year, billions in scholarships and grants go unclaimed while students take on unnecessary debt. This guide explains the differences between these types of aid and shows how Orbit AI can help you cut loan debt by finding free aid first.

Scholarships, Grants, Loans: A Comparison

Type of Aid	What It Is	Repay?	How to Qualify
Scholarships	Gift aid based on merit, background, major	No	Academics, DEI status, interests
Grants	Gift aid based on financial need (from FAFSA)	No	Financial need
Loans	Borrowed money that must be repaid with interest	Yes	FAFSA + enrollment

The smartest strategy is to always maximize scholarships and grants before even considering loans. Parent PLUS loans, with their high-interest rates, should be a last resort.

What’s the Smartest Order for Financial Aid?

Students who graduate with less debt follow this order:

File FAFSA early using the Orbit AI to maximize grants.
Use the Orbit AI Scholarship Search to find awards that match your profile.
Accept scholarships and grants first to cover as much as possible.
Take only the loans you absolutely need, avoiding private and Parent PLUS loans if you can.

For more details, see our guides on How to Apply for Financial Aid and the Best FAFSA Tools.

Common Mistakes to Avoid

Many students assume they "need" loans without fully exploring scholarships, or they miss FAFSA deadlines, which reduces their grant eligibility. Don't make these costly errors. For a full checklist, read our guide on the Top FAFSA Mistakes to Avoid.

Scholarships vs. Grants vs. Loans FAQ

What should I accept first: scholarships, grants, or loans?

Always accept scholarships and grants first. They are free money and do not need to be repaid. Take only the loans you truly need to cover any remaining gap.

Is a Pell Grant a scholarship?

No, it’s a federal grant awarded based on financial need determined by your FAFSA. Like scholarships, it does not have to be repaid.

Are Parent PLUS loans a good option?

They should be your absolute last resort. These loans have higher interest rates and less flexible repayment terms than federal student loans. Exhaust all scholarship and grant opportunities first.

Can scholarships and grants cover all my costs?

For many students, yes, especially when combining Pell Grants, state aid, institutional grants from the college, and targeted external scholarships. Orbit AI helps you find these opportunities.

By Devansh Dubey (Last updated: June 22, 2025)