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.
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 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.
Information advertised valid as of 4/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* 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.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.24% – 13.24%1||Undergraduate and Graduate|
|4.07% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 11.35%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|6.08% – 7.22%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|