Grants and scholarships are both types of gift aid. Gift aid is money that does not need to be earned or repaid, unlike student employment and student loans.

Although the words grant and scholarship are often treated as synonyms, there are important differences. Grants tend to be based on financial need, while scholarships tend to be based on merit.

What is a grant?

Eligibility for a grant is based on demonstrated financial need, which is the difference between the college’s cost of attendance (COA) and the expected family contribution (EFC). Some grants, such as the Federal Pell Grant, are based solely on the EFC. Eligibility for state grants, like the Cal Grants and New York TAP Grants, often involves an income cutoff.

Grants are usually awarded by the federal and state governments and by colleges and universities.

The Federal Pell Grant is the largest single grant program. Almost half of all grants come from the colleges and universities, more than a quarter are Federal Pell Grants, and the rest are evenly split between military student aid and state grant programs.

To apply for grants, file the Free Application for Federal Student Aid (FAFSA) at fafsa.ed.gov as soon as possible on or after October 1.

What is a scholarship?

Eligibility for a scholarship is based on merit. Examples of merit scholarships include those that are awarded based on academic, artistic or athletic talent. Scholarships may also be awarded based on unusual talents, such as making a prom costume out of duct tape. For example, the top prizes awarded by the Stuck at Prom scholarship contest are $10,000 each for the best dress and best tux.

Scholarships are usually awarded by private scholarship providers, such as foundations, philanthropists, unions, employers, professional membership organizations, fraternal groups, non-profit organizations and religious institutions.

A few hundred colleges award full-tuition academic scholarships based on the student’s high school grade point average (GPA), admissions test scores and class rank.

Some scholarships have characteristics similar to grants. For example, many grants require the student to maintain at least a minimum GPA to renew the need-based grant.

Scholarships that are awarded to graduate students are often called fellowships.

Private scholarships and fellowships total about $6 billion a year to millions of students. The average college scholarship is about $4,000, received by about 1 in 8 college students.

To apply for scholarships, use a free scholarship matching tool, such as the ones offered by Fastweb.com and the College Board’s Big Future.

Did you know that scholarships are taxable? Use our Scholarship Tax Calculator to figure out the taxable amount of your scholarships and calculate how much you’ll have to pay in taxes. Amounts used to pay for tuition and textbooks may be tax-free, but amounts used to pay for living expenses are taxable.

Why apply for grants and scholarships?

Grants and scholarships can supplement college savings and help reduce the student’s debt and work burden. Every dollar you win is about a dollar less you’ll have to borrow.