How to pay for college · By CalChannel Editorial Team · Updated September 29, 2026
A student loan is borrowed money you must repay with interest, while a scholarship is money awarded to you that you don’t repay. Grants are also free money but are usually based on financial need. For 2026-27, undergraduate federal loans carry a fixed 6.52% rate plus a 1.057% fee, so every dollar of scholarship or grant aid you win is a dollar you don’t have to repay with interest later.
How is a student loan different from a scholarship? One is debt and the other isn’t. But the differences go further: who can get each one, how you apply and what can make you lose it.
This guide compares loans, scholarships and grants side by side, with the main examples California students will see in their aid offers.
| Feature | Student loan | Scholarship | Grant |
|---|---|---|---|
| Repay it? | Yes, with interest | No | No (except in limited cases, such as withdrawing early) |
| Usually based on | Enrollment (federal) or credit (private) | Merit, talent, background, major or need | Financial need |
| How to apply | FAFSA for federal loans; lender application for private | Separate applications to colleges and organizations | FAFSA or California Dream Act Application |
| California examples | Direct Subsidized and Unsubsidized Loans (6.52% in 2026-27) | College merit awards, local and private scholarships | Pell Grant (up to $7,395), Cal Grant, Middle Class Scholarship |
Sources: U.S. Department of Education; Federal Student Aid; California Student Aid Commission. Full list at the end of the article.
In This Article
What Is a Student Loan?
A student loan is money you borrow for college costs and repay over time with interest. Federal Direct Loans come from the U.S. Department of Education, have fixed rates set each year and include income-driven repayment. Private loans come from banks and other lenders, depend on credit and often need a cosigner. See our guide to student loan pros and cons.
What Is a Scholarship?
A scholarship is money awarded to help pay for education that you don’t repay. Colleges, employers, community groups, foundations and professional associations give scholarships based on academics, talent, background, intended major, service or need. Some are one-time awards; others renew if you keep a required GPA or enrollment level. Read more in our scholarship definition guide.
Grants vs. Scholarships
Grants and scholarships are both gift aid. The difference is mainly how they’re awarded: grants usually depend on financial need, measured by your FAFSA or California Dream Act Application, while scholarships are more often competitive and based on other criteria. In California, the main grants are the federal Pell Grant, Cal Grant and the Middle Class Scholarship, which despite its name is awarded automatically through the FAFSA or CADAA.
“Scholarships take effort and grants take a form. File the FAFSA or Dream Act application first, because it unlocks the biggest grants automatically, then spend your application time on scholarships to close the rest of the gap.”
CalChannel Editorial Team
What the Difference Costs You
At the 2026-27 undergraduate rate of 6.52%, borrowing $10,000 and repaying it over 10 years costs about $114 a month and about $3,640 in total interest, plus the 1.057% loan fee. A $10,000 scholarship or grant costs you nothing to repay. That’s why it’s worth applying for scholarships even when a loan could cover the gap.
Which to Use First
- File the FAFSA or California Dream Act Application by March 2 for grants
- Apply for scholarships from your college and outside organizations
- Use savings, family help and work-study
- Borrow federal subsidized loans, then unsubsidized loans
- Consider private loans only after federal options
Frequently Asked Questions
How is a student loan different from a scholarship?
A student loan must be repaid with interest. A scholarship doesn’t have to be repaid, as long as you meet any conditions attached to it.
Can I lose a scholarship?
Yes. Renewable scholarships often require a minimum GPA or full-time enrollment, and you can lose future payments if you don’t meet them.
Do grants ever have to be repaid?
Usually not, but you may have to return part of a federal grant such as Pell if you withdraw early in a term.
Can scholarships reduce my other aid?
Yes. Total aid generally can’t exceed your cost of attendance, so a large outside scholarship may reduce other aid, often loans first. Tell your aid office about outside awards.
Are scholarships taxable?
Scholarships and grants used for tuition, required fees, books and required supplies generally aren’t taxable. Amounts used for housing and food may be. IRS Publication 970 has the details.
The Bottom Line on Loans, Scholarships and Grants
Loans are debt; scholarships and grants are not. File the FAFSA or Dream Act application for grants, apply widely for scholarships, and borrow federal loans only for what’s left. See how to pay for college for the full plan. A strong essay can make the difference when you apply for scholarships; see our scholarship essay tips.
Sources
- U.S. Department of Education. “GENERAL-26-33: Interest Rates for Federal Direct Loans, 2026-27.” fsapartners.ed.gov.
- U.S. Department of Education. “GEN-26-01: 2026-27 Federal Pell Grant Maximum and Minimum Award Amounts.” fsapartners.ed.gov.
- California Student Aid Commission. “Middle Class Scholarship.” csac.ca.gov.
- Internal Revenue Service. “Publication 970: Tax Benefits for Education.” irs.gov.
CalChannel Editorial Team California college guides
The CalChannel editorial team researches and writes guides to California colleges, admissions and financial aid. We build our college profiles and aid guides from colleges’ own published data, federal IPEDS data and the California Student Aid Commission. Read our editorial policy.
