Do You Have to Pay Back Financial Aid?

 April 23, 2021
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do you have to pay back financial aid

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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:

1. Grants
2. Scholarships
3. Student loans
4. Federal work study
● Plus: How to get the money you’re entitled to

1. Grants

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.

2. Scholarships

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.

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.

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.

4. Federal work study

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.

How to get the money you’re entitled to

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.

The only time you wouldn’t need to pay back a student loan is if you qualify for student loan discharge, student loan forgiveness or some other repayment assistance program.

Rebecca Safier, Laura Woods and Honey Smith contributed to this article.

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1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community 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.

  1. As certified by your school and less any other financial aid you might receive. Minimum $1,000.
  2. 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.
  3. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 9/15/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.47% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.80% APR to 11.69% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

3 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

4 Important Disclosures for Edly.

Edly Disclosures

1. Loan Example:

  • Loans from $5,000 – $20,000
  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
    • Payments deferred for the first 12 months during final year of education.
    • After which, $270 Monthly payment for 12 months.
    • Then $379 Monthly payment for 44 months.
    • Followed by one final payment of $137 for a total of $20,610 paid over the life of the loan.

About this example

The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.

2. Edly Student IBR Loans are unsecured personal student loans issued by FinWise Bank, a Utah chartered commercial bank, member FDIC. All loans are subject to eligibility criteria and review of creditworthiness and history. Terms and conditions apply.

5 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of September 1, 2022, the 30-day average SOFR index is 2.23%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the 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 are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical 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.


    Undergraduate Rate Disclosure: Variable interest rates range from 3.25%-10.35% (3.25% – 9.69% APR). Fixed interest rates range from 4.24% – 10.59% (4.24% – 9.93% APR). 

    Graduate Rate Disclosure: Variable interest rates range from 3.75%-9.90% (3.75% – 9.68% APR). Fixed interest rates range from  5.22% – 10.14% (5.22% – 9.91% APR). 

    Business/Law Rate Disclosure: Variable interest rates range from 3.75%-9.35% (3.75% – 9.16% APR). Fixed interest rates range from 5.20% – 9.59% (5.20% – 9.39% APR).

    Medical/Dental Rate Disclosure: Variable interest rates range from 3.75%-9.02% (3.75% -8.98% APR). Fixed interest rates range from 5.18% – 9.26% (5.18% – 9.22% APR). 

    Parent Loan Rate Disclosure: Variable interest rates range from 3.25%-9.21% (3.25% – 9.21% APR). Fixed interest rates range from 3.96%-9.50% (3.96%-9.50% APR).

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    Medical Residency Rate Disclosure: Variable interest rates range from 5.67%-9.17% (5.67% – 8.76% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.08% APR).

6 Important Disclosures for Funding U.

Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.