When I went to college, I was woefully ill-informed. I completed the Free Application for Federal Student Aid (FAFSA) and rejoiced when I saw that my expected family contribution was $0. I literally danced around because I thought that meant I got a free college education.
Not really understanding what I was doing, I submitted my forms and didn’t think about it again until I received a loan promissory note. As I read it, I was shocked. I thought I was getting free money, not a loan that I’d have to pay back. It was a harsh reality check in the form of thousands in student loans.
Do you have to pay back financial aid? As I (painfully) found out, the answer is “sometimes.”
Do you have to pay back financial aid?
When it comes to financial aid, there are three main types: grants, scholarships, and loans. Each category has their own terms and fine print when it comes to repayment.
Grants are the holy grail of financial aid. The government normally distributes grants based on financial need, rather than merit. Receiving a grant can reduce the amount of student loans you need to borrow.
According to the U.S. Department of Education, grants are sometimes known as “gift aid” because they are your money to keep; grants do not have to be repaid (except in extenuating circumstances).
There are five types of government-issued grants:
- Federal Pell Grants: As of 2017, low-income undergraduate students working toward a bachelor’s degree can receive up to $5,920 per year to pay for school.
- Federal Supplemental Educational Opportunity Grants (FSEOG): If you have not yet received a bachelor’s or graduate degree, you might be eligible for up to $4,000 per year. Aid is dependent on the availability of funds at the school you attend.
- Teacher Education Assistance for College and Higher Education (TEACH): Teachers pursuing a bachelor’s or graduate degree can receive up to $3,736 per year in grants. However, you must agree to teach for at least four years in a low-income school.
- Iraq and Afghanistan Service Grants: If your parent or guardian was a member of the military and died during their service in Iraq or Afghanistan, you could receive up to $5,529.28 per year. You can only receive this grant if you’re ineligible for Pell Grants.
- State-issued grants: Beyond grants from the federal government, you might also be eligible for grants from your state.
Eligibility for federal and state grants is determined when you fill out the FAFSA.
Although you don’t normally have to repay grants, there are some exceptions. For example, if you withdraw from a program or change your student status from full time to part time, you might have to repay some or all of your grant.
Like grants, scholarships are a form of gift aid that do not have to be repaid. Scholarships are offered by a huge range of organizations, including schools, employers, individuals, private companies, nonprofits, communities, religious groups, and professional and social organizations.
Scholarships can range from small amounts to large awards that cover the cost of your tuition. Unlike grants, many organizations usually award scholarships based on merit, such as good grades or athletic excellence, rather than financial need.
While you can receive scholarships from your school, receiving awards from other organizations takes more work. In most cases, you need to apply for the award by submitting your information directly to the sponsoring organization.
To find potential scholarships, research opportunities you might be eligible for using one of the many scholarship search engines available online.
Although most scholarships don’t have to be repaid, some might have contingencies. For example, if your GPA drops, you might lose your award.
3. Student loans
Unlike grants and scholarships, loans are money that you borrow that must be paid back with interest. In most cases, you must repay your loans even if you don’t complete your degree, are unhappy with the education you received, or experience financial difficulty as the result of unemployment or bankruptcy.
For this reason, grants and scholarships are preferable to taking out student loans. Gift aid is better than money you have to pay back. However, you probably won’t be able to cover 100 percent of your college costs with just grants and scholarships.
Federal student loans are awarded based on the information you submitted on your FAFSA. Federal loans have benefits such as access to forbearance, deferment, and income-driven repayment plans. They also tend to have lower interest rates.
There are three types of federal student loans currently offered:
- Direct Subsidized Loans: As of 2017, undergraduate students can borrow up to $5,500 per year at 4.45% interest. Because the loans are subsidized, the government pays the interest that accrues while you’re still in school.
- Direct Unsubsidized Loans: Undergraduate, graduate, and professional degree students can borrow up to $20,500 per year. The borrower is responsible for paying all interest that accrues. For undergraduate students, the interest rate is 4.45%. For graduate and professional degree students, it’s 6%.
- Direct PLUS Loans: Graduate and professional degree students, or parents of an undergraduate student, can borrow as much as they need to pay for school minus the other aid they receive. The interest rate is 7%.
If you’ve exhausted your federal student loan options, you might need to apply for a private loan to cover the cost of school. Unlike federal loans, lenders base private loan approvals on creditworthiness and income.
Private loans usually do not have the same benefits as federal loans. If you lose your job or can’t afford your payments, your lender might not offer you an alternative payment plan. For that reason, it’s often wiser to use federal loans first before borrowing from a private lender.
How to get the money you’re entitled to receive
Do you have to pay back financial aid? Though the answer isn’t a simple one, you now know the different sorts of aid available and their repayment terms.
The first step to receiving grants, scholarships, or student loans is completing the FAFSA. Because funds for grants are limited, the earlier you apply, the better your chances of getting gift aid.
Honey Smith contributed to this article.
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