All three show up on a financial aid offer letter, and all three help pay for school — but only one of them ever has to be paid back, which makes understanding the difference worth more than almost anything else in the financial aid process. * Grants are awarded based on financial need, not academic performance, and generally don't need to be repaid as long as you continue meeting the eligibility requirements — maintaining enrollment status, for instance. They're funded by federal and state governments, colleges, and private organizations, with the Pell Grant being the most well-known federal example. * Scholarships are awarded based on merit rather than need — academic achievement, athletic ability, involvement in specific organizations, or even ancestry and background can all be criteria, depending on the specific scholarship. Like grants, scholarships are essentially gifts: you generally don't repay them, and there's no cap on how many you can receive if you qualify for multiple. * Loans are the one category that always has to be repaid, with interest, regardless of whether they're federal or private, subsidized or unsubsidized. Borrowing means committing to future payments, which is why loans are treated as a last resort in most financial aid planning rather than a first choice. * The standard sequencing advice follows directly from these differences: apply for and accept every grant and scholarship you're eligible for first, since that money never has to be repaid, and only turn to loans to cover whatever gap remains after free aid is exhausted.