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Can You Use Scholarships to Pay Off Student Loans?

You may not be able to use a scholarship to pay off a student loan, but there are some alternatives that could help.

Chris Scott

Contributing Writer at Tally

May 9, 2022

Imagine this scenario: You’ve taken out student loans to pay for college. You have a strong academic year, apply for a scholarship and end up winning it. Can you use the scholarship to pay off student loan debt?

The answer to that question can be a bit tricky. It often depends on the type of money you receive. In this article, we’ll sort through:

  • Whether you can use scholarships to pay off student loans 

  • Some of the alternatives available to help pay down debt 

Is it possible to use scholarships to pay off student loans?

Whether you can use a scholarship to pay off a student loan depends on the organization awarding the money. Many organizations send funds directly to the school for tuition, preventing you from using them for your student loans. 

Others may require you to provide receipts if you use the scholarship to cover the cost of:

  • Books

  • Room and board

  • Student fees

Since you need to provide receipts for specific purchases, you may not be able to make a student loan payment with the scholarship money. 

However, if you’re awarded a scholarship where:

  • The money is sent directly 

  • Receipts aren’t required

you could use the funds to make a payment on your student loan.

However, you may be better off putting the scholarship money towards expenses rather than paying down existing loan debt. Doing so prevents you from having to take on additional student loan debt.

For instance, let’s say that you apply for a scholarship and are awarded $1,000. If you use that $1,000 to make a tuition payment, it’ll keep you from having to take out an additional $1,000 in student loans. So whether or not you’re able to use a scholarship to pay off existing student loans, you may be able to use it to prevent yourself from taking on new debt.

Additionally, if you’ve already taken out a loan and then receive a scholarship, you have a 120-day grace period to cancel the portion of the loan that isn’t needed. This could save you money on interest. 

It’s also notable that many scholarships are only available to current students, with some exceptions. If you’ve graduated, there’s a slim chance that you’ll be able to use a scholarship to pay off your debt.

Lastly, remember that there are thousands of scholarships available to college students. Eligibility requirements can range from academic merit to a particular area of study. Taking the time to complete scholarship applications could save you thousands of dollars, especially when considering the compounding interest you’d have to repay if you otherwise borrowed money. 

Are you required to make loan payments while in school?

If you currently have student loans, you may be concerned about making payments while enrolled in college. But, is this a valid concern? Do you need to pay down your student loans while attending school? 

There are a few different types of federal student loans available to borrowers. Each has its own repayment plan and stipulations as to when you must start making monthly payments. (Keep in mind that lenders of private student loans also have their own criteria when it comes to making student loan payments.)

The only type of student loan from the federal government that requires a payment while in school is the parents Direct PLUS loan. With a parent PLUS loan, parents are required to make a payment as soon as a loan is fully disbursed, regardless of whether their child is still in school or not (although parents can request a deferment).

Aside from this loan type,  you don’t need to make payments on federal student loans while in school. However, unless you have a Direct Subsidized Loan, your loans accrue interest while in school. 

If you can make any payments on a loan during school or use a scholarship to offset the amount of loan debt you need to take on, that can help reduce the overall cost of the loan.


How can you pay off student loans after graduation?

If you graduated and are struggling to pay off your student loans, you may consider student loan forgiveness programs. Many of these programs call for you to work full time for a nonprofit organization or in public service for a few years after graduation.

For instance, if you’re a teacher, the Teacher Loan Forgiveness Program can save you up to $17,500 on your student loans. The U.S. Department of Education offers this program.

Those who attended law school the John R. Justice Program repays a portion of your debt if you serve as a public defender or state prosecutor. You must serve in this role for at least three years. The Attorney Student Loan Repayment Program is also an option for law students. The U.S. Department of Justice offers these federal programs. 

There are also forgiveness programs slated for healthcare professionals. For example, if you commit to two years of service in a high-needs community, you can have a portion of your debt removed from your student loan balance under the National Health Service Corps Program. This option is available to a wide range of medical professionals, including:

  • Doctors

  • Dentists

  • Mental health professionals

The Nurse Corps Loan Repayment Program is another similar option, seeking registered nurses for critical shortage areas.

Additionally, there may be student loan grants available, offering unique repayment options to students looking to pay off their existing student loan balances. Like scholarships, grant money doesn’t need to be repaid, although it may come with certain stipulations or eligibility requirements. 

An example of a repayment grant is the Iraq and Afghanistan Service Grant, financial aid for those with a parent or guardian who died serving in the military after 9/11.

Other options that you may want to consider to help pay down your student loan balances include:

Be sure to do your homework and explore all of your options before determining how to pay off your student loan debt. Your loan servicer or a financial advisor may be able to offer guidance or point you in the right direction to help you make an informed decision.

Scholarships can help you avoid student loan debt 

Paying off your student loans is not easy, especially with compounding interest. If you are looking for ways to pay off your student loans, one option you may consider is a scholarship. Scholarships, however, have their limitations. You can typically only receive scholarships if you’re enrolled in school, and scholarship funds are often sent directly to your school on your behalf. Scholarships can help you cover your education costs and avoid taking out loans.

Even if you can’t use a scholarship to pay off a student loan, there may be other options available. For instance, there are grant programs and student loan forgiveness programs specifically intended to help students pay down their student loans. These options may require you to sign on to a few years of public service  but could be well worth it when you consider the positive financial impact.

If you’re looking to pay off your student loans, you should also be sure to focus on your personal finances as a whole. One tool that you could consider using is Tally†. Tally is a credit card payoff app designed specifically to help you not only pay down your existing credit card debt but also manage due dates. Freeing up cash could potentially allow you to put more money toward your student loan debt and reach financial freedom.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.