Quick overview

Scholarships and grants are the two main kinds of “free money” for college—funds students don’t have to repay. While both reduce out-of-pocket costs, they differ in typical eligibility, application process, and oversight. This guide explains those differences, outlines how to find awards, and gives practical strategies to combine aid sources effectively.

Background and context

Financial aid for education has deep roots: private benefactors funded scholars for centuries, and public grant programs expanded in the 20th century to broaden access to higher education. Today, scholarships are offered by colleges, private foundations, employers, nonprofits, and local groups. Grants come from federal and state governments, colleges, and some nonprofits.

In my practice advising families on college planning for over a decade, I’ve seen scholarships change a student’s choice of school and grants help bridge affordability gaps that would otherwise push families toward heavy borrowing.

Authoritative guidance and program details are managed by Federal Student Aid (U.S. Department of Education) and state higher-education agencies (see studentaid.gov and ed.gov for federal rules).

How scholarships and grants work

  • Scholarships: Awarded for merit, skills, or to meet a specific mission. Criteria might include GPA, test scores, leadership, athletic or artistic talent, field of study, demographic background, or community service. Colleges often bundle merit scholarships into admissions offers; private scholarships require separate applications.

  • Grants: Typically need-based and awarded after a financial assessment. The main gateway for federal and many state grants is the FAFSA (Free Application for Federal Student Aid). Some institutional grants are also need-based and may require additional forms.

Both award types may be restricted to tuition and fees or may also cover room and board, books, and supplies. Schools report grants and scholarships on the financial aid award letter and on the Form 1098-T for tax reporting purposes (see Federal Student Aid and IRS guidance).

Sources: Federal Student Aid (studentaid.gov), U.S. Department of Education (ed.gov).

Key differences at a glance

  • Typical basis: Scholarships = merit/criteria; Grants = financial need. Notable exceptions exist (e.g., merit-based institutional grants).
  • Application path: Scholarships often need essays, recommendations, and separate portals; grants usually use FAFSA or state forms.
  • Funding sources: Scholarships from private donors, colleges, nonprofits; grants from federal/state government or colleges.
  • Renewal rules: Many scholarships require maintaining GPA or involvement; grants renew based on continued demonstrated need and enrollment status.

Finding and applying: A practical checklist

  1. Complete the FAFSA every year you’ll be enrolled. Many state and institutional grants require FAFSA data (see our FAFSA 101 guide for step-by-step help: https://finhelp.io/glossary/fafsa-101-a-beginners-guide-to-financial-aid/).
  2. Apply early and often to scholarship pools—local organizations, professional associations, and college departments. Smaller awards are less competitive and often have higher odds of success.
  3. Use targeted search tools and your school counselor. National databases (e.g., College Board’s Scholarship Search) help, but local community foundations and employers are underused sources.
  4. Tailor each application: reuse strong essays but customize to the donor’s mission and criteria.
  5. Keep an organized tracker with deadlines, application requirements, and submission confirmations.
  6. Ask financial aid offices how outside scholarships affect your package—institutions may reduce institutional grants when external awards arrive.

Tools and resources: Federal Student Aid (studentaid.gov), College Board (collegeboard.org), NASFAA (nasfaa.org).

Real-world examples (anonymized)

  • Merit-driven scholarship: A student with strong STEM coursework and robotics accomplishments earned a departmental scholarship at a state university that covered tuition for two years. The application required a project portfolio and an interview.
  • Need-based grant: A low-income family completed the FAFSA and qualified for a state grant plus an institutional grant that together reduced the family’s expected contribution enough to make the public university affordable without loans.

These examples show why applying for both types of aid is rarely redundant—many students receive a mix.

Eligibility: who benefits most

  • Scholarships: Students with notable achievements—academic, athletic, artistic, or community service—or those who meet specific demographic, geographic, or career-oriented criteria.
  • Grants: Students from lower- and middle-income households or those with special circumstances (e.g., single-parent households, multiple college students in the same household) often qualify. Eligibility is determined by information on the FAFSA or state aid forms.

Note: Institutional “grants” can be effectively merit scholarships labeled as grants. Always read your award letter carefully and ask the financial aid office to explain each line item.

Strategic tips to maximize free aid

  • File early: Deadlines matter for both FAFSA and many scholarship programs.
  • Prioritize local scholarships: Fewer applicants means better odds.
  • Combine small awards: Several $500–$2,000 scholarships can add up to significant savings.
  • Maintain scholarship conditions: Know GPA or service requirements so awards renew.
  • Negotiate with colleges: If you receive a better offer from another school, ask your top-choice college’s aid office for a review—colleges sometimes revise offers.
  • Coordinate with savings and employer benefits: If you have a 529 plan or employer tuition assistance, check how those sources affect need-based aid and report them correctly.

For coordination tips with college savings, see our guide on how 529 plans work: https://finhelp.io/glossary/how-529-plans-work-benefits-limits-and-strategies/.

Common mistakes and misconceptions

  • “Only straight-A students get scholarships.” False—scholarships exist for many interests, career aims, and background attributes.
  • “My family makes too much for grants.” Not always true—FAFSA assesses multiple factors; dependents in college, household size, and special circumstances can lower expected family contribution.
  • “One big scholarship will cover everything.” Rarely. Even full-tuition scholarships may not cover fees, room and board, or personal expenses.
  • “I only need federal aid.” Many students miss state and institutional grants and private scholarships that close critical gaps.

How awards affect financial aid packages

Colleges combine grants, scholarships, loans, and work-study into an award package. External scholarships (from outside the school) can reduce a college’s institutional aid, leaving overall aid similar. Ask the financial aid office how outside awards will be applied so you can plan. For step-by-step FAFSA timing and updates, check our FAQ on FAFSA Updates: https://finhelp.io/glossary/fafsa-updates-what-families-should-know/.

Tax and reporting notes

Scholarships and grants used for qualifying education expenses (tuition, required fees, course materials when required by the institution) are generally tax-free. Funds used for room and board or nonrequired expenses can be taxable. Institutions report certain aid on Form 1098-T; consult IRS guidance or a tax advisor for specifics.

Authoritative sources: Federal Student Aid (studentaid.gov) and the IRS (irs.gov).

Frequently asked questions

  • Can I accept scholarships and grants at the same time? Yes. Most students combine multiple award types, but verify renewal rules and how the college treats outside scholarships.

  • Do private scholarships affect my FAFSA? Some private scholarships must be reported to your college; they can reduce institutional grants but typically do not change federal Pell eligibility.

  • How often should I apply? Apply every year. FAFSA and many scholarships require annual reapplication.

Action plan for students and families (next 90 days)

  1. Create a deadline calendar for FAFSA, state deadlines, and top scholarship deadlines.
  2. Complete the FAFSA as soon as the application opens for the academic year.
  3. Identify 10 local scholarships and 5 national ones that match your profile and start tailored essays.
  4. Contact financial aid offices at target schools to confirm how outside scholarships are handled.

Closing notes and professional disclaimer

Scholarships and grants are essential tools to reduce college costs and lower debt. In my experience helping families plan for college, disciplined application work and early FAFSA filing are the single most effective steps to increase free aid. This article is educational and not personalized financial advice. For decisions tied to your unique financial circumstances, consult a certified financial planner, tax advisor, or your school’s financial aid office.

Sources and further reading

Internal resources

(Last reviewed: 2025)