Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
* * *
Do you ever have to pay back any of the financial aid you receive for college or graduate school? The answer depends on the type of aid you receive.
If you receive what’s often called “gift aid” — grants or scholarships — the answer is usually no. But if you borrow student loans, you’ll very likely need to pay that money back, with interest.
Let’s take a closer look at the following different types of financial aid so you understand in which cases you would have to pay back that aid:
Unlike other types of financial aid, you typically do not have to pay back grants. You would only need to repay a grant in certain extenuating circumstances. For example, if you withdrew from a program or changed your student status from full time to part time, you might have to repay some or all of your grant.
Additionally, if you received outside scholarships or grants that reduced your need for federal aid or didn’t fulfill the requirements of the TEACH Grant, you might also be on the hook for all or part of a federal grant.
The government usually distributes grants based on financial need rather than merit. Receiving a grant can reduce the amount of student loans you need to borrow.
There are five types of government-issued grants:
- Federal Pell Grants: For the 2021-22 school year, low-income undergraduate students working toward a bachelor’s degree can receive up to $6,495 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 $4,000 per year in grants. To be eligible for this grant, you must agree to teach for at least four years in a high-need field at 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 $5,983.34 for the 2021-22 year (this amount changes annually). 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.
Like grants, scholarships are a form of gift aid that don’t 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.
Note that although most scholarships don’t have to be repaid, some might have contingencies. For example, if your GPA drops, you might lose your award.
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.
Note that there are a few exceptions. If you were defrauded by your school or can’t work due to a disability, for example, you might qualify for a discharge of your student loans.
But since most borrowers need to repay their loans, grants and scholarships are preferable to student loans; gift aid is clearly better than money you have to pay back. However, you probably won’t be able to cover 100% of your college costs with just grants and scholarships.
What you need to know about student loans
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 than private loans.
There are three types of federal student loans currently offered:
- Direct subsidized loans: Borrowing amounts vary according to the year of school you’re in, and whether you’re a dependent or independent student. For the 2020-2021 school year, direct subsidized loans have a 2.75% interest rate. Because the loans are subsidized, the government pays the interest that accrues while you’re still in school.
- Direct unsubsidized loans: Borrowing amounts vary according to the year of school you’re in, and whether you’re a dependent or independent student. However, you’re responsible for paying all interest that accrues. For the 2020-2021 school year, the interest rate for undergraduate students is 2.75%. For graduate and professional degree students, it’s 4.30%.
- 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 current interest rate is 5.3%.
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.
In addition, 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 example. For that reason, it’s often wiser to use federal loans first before borrowing from a private lender.
Still, regardless of whether your student loans are federal or private, they are still financial aid that you’ll have to pay back. Be sure you understand where to pay off the student loans.
Federal work study allows you to earn money to help pay for your education. Undergraduate, graduate and professional students with financial need are able to obtain a part-time job while enrolled in school.
You’ll earn at least the federal minimum wage and maybe more, depending on the type of work and skills needed to qualify for the position. Your work-study award depends on when you apply, your level of financial need and your school’s funding level.
Check with your school’s financial aid office to see if it participates in the federal work-study program.
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. If you need to take out student loans, remember that this is a type of financial aid that must be paid back.
Need a student loan?Here are our top student loan lenders of 2021!
|1.04% – 11.98%1||Undergraduate, Graduate, and Parents|
|1.13% – 11.23%*,2||Undergraduate, Graduate, and Parents|
|3.84% – 9.40%3||Undergraduate and Graduate|
|1.05% – 11.44%4||Undergraduate and Graduate|
|1.22% – 11.66%5||Undergraduate and Graduate|
|2.76% – 7.14%6||Undergraduate and Graduate|
|1.24% – 11.99%7||Undergraduate and Graduate|
|* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers. |
1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
Information advertised valid as of 4/22/2021. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.22% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.12% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.29% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.22% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 4/1/2021. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org)..
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
Undergraduate Rate Disclosure: Variable interest rates range from 2.76% – 7.14% (2.76% – 7.14% APR). Fixed interest rates range from 3.01% – 7.50% (3.01% – 7.50% APR).
Graduate Rate Disclosure: Variable interest rates range from 2.19% – 6.73% (2.19% – 6.73% APR). Fixed interest rates range from 2.89% – 7.09% (2.89%-7.09% APR).
Business/Law Rate Disclosure: Variable interest rates range from 1.36% – 9.54% (1.36% – 8.82% APR). Fixed interest rates range from 4.13% – 9.84% (4.13% – 9.12% APR).
Medical/Dental Rate Disclosure: Variable interest rates range from 1.36% – 8.34% (1.36% – 8.04% APR). Fixed interest rates range from 4.03% – 8.64% (4.03% – 8.34% APR).
Parent Loan Rate Disclosure: Variable interest rates range from 2.10% – 7.41% (2.10%-7.41% APR). Fixed interest rates range from 4.69% – 7.83% (4.69% – 7.83% APR).
Bar Study Rate Disclosure: Variable interest rates range from 4.45% – 9.60% (4.45% – 9.53% APR). Fixed interest rates range from 7.39% – 12.94% (7.38% – 12.81% APR).
Medical Residency Rate Disclosure: Variable interest rates range from 3.55% – 7.05% (3.55% – 6.77% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.07% APR).
Variable Rate Disclosure: Variable Rates are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of March 1, 2021, the one-month LIBOR rate is 0.11%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates require a 5-year repayment term, immediate repayment, a graduate degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.