[Q&A] Do I Have to Pay Back FAFSA? What to Know About Financial Aid Repayment

The Free Application for Federal Student Aid (FAFSA) is how students access federal financial aid, including grants, scholarships, and loans. It is a critical tool in making higher education more affordable for many students.

Repayment depends on the type of aid received. Grants and scholarships usually don’t require repayment, while loans do. This article will address common questions about FAFSA repayment obligations to help you better understand the process.

When do you have to pay back FAFSA aid?

The FAFSA plays a critical role in helping students access funding for their education. By completing the FAFSA, students can become eligible for financial aid, such as grants, scholarships, and federal loans, based on their financial need and enrollment status.

Some types of financial aid obtained through the FAFSA, such as federal Pell grants and scholarships, typically don’t require repayment. These funds are usually awarded based on financial need or merit and are designed to reduce the financial burden of higher education.

Federal student loans, which are also accessed via the FAFSA, must be repaid. Repayment on these loans typically begins six months after a student graduates, leaves school, or drops below half-time enrollment. The six-month grace period provides time to prepare for repayment.

However, it’s important to note that interest may accrue during this grace period, especially on unsubsidized federal student loans. Unlike subsidized loans, which don’t accrue interest while the borrower is in school, unsubsidized loans start accruing interest from the date they are disbursed.

While most grants and scholarships don’t need to be repaid, certain situations may require repayment, such as:

• Early withdrawal. You may need to repay some or all of a federal grant if you withdraw early from the program for which you received the grant. 
• Enrollment status change. If your enrollment significantly changes, such as going from full-time to part-time enrollment status, you might need to repay a federal grant. 
• Decrease in financial need. If you received scholarships or other grants that lowered your financial need, you might need to repay some or all of your federal grants. 
• Failing to meet other grant or scholarship requirements. Grants or scholarships may require maintaining a certain GPA or fulfilling other commitments. Failure to meet these could result in losing the funding source or needing to repay the money.
• Misuse of funds. If you don’t use the funds as intended, you might need to pay them back. For instance, deciding not to attend school after receiving the funds might trigger repayment.

Before accepting the funds, take time to understand the terms of the grant or scholarship to avoid unexpected repayment. 

Does failing a class mean you have to repay FAFSA funds?

Failing a class does not automatically mean you must repay FAFSA funds, but it can impact your eligibility for financial aid. Understanding your school’s policies and seeking support, such as tutoring or academic advising, can help you avoid potential issues.

Federal student aid requires students to maintain satisfactory academic progress (SAP) to remain eligible for funding. While each school establishes its own policy, SAP often includes maintaining a minimum GPA, completing a certain number of credits, or making progress toward program completion. 

Even if you fail a class, as long as you meet your institution’s SAP requirements, your financial aid may not be affected. However, if failing a class causes you to fall below the SAP standards, you risk losing future financial aid.

In such cases, your school may place you on financial aid probation or suspension. To regain eligibility, you may need to improve your academic performance or file an appeal with your school’s financial aid office, explaining the circumstances that led to your SAP violation.

What happens if you drop out?

Withdrawing from school can have serious financial aid implications, including the possibility of needing to repay some or all of the funds you received.

If you withdraw before completing 60% of the term, federal Pell Grants and loans are subject to a Return of Title IV Funds policy. This policy determines how much financial aid you earned based on the percentage of the term you attended.

The school calculates the percentage of aid earned by comparing the time you were enrolled to the total time in the term. Any unearned aid must be returned to the government. However, no funds must be returned if you complete at least 60% of the term.

Scholarships or other aid may have separate rules and could require repayment if you fail to meet their specific conditions, like maintaining enrollment. To avoid financial surprises, contact your school’s financial aid office before withdrawing to understand the impact on your aid and repayment responsibilities.

If I were to help a client who had lost their financial aid or stopped attending school and had student loans to repay, I would begin by discussing the reason for the loss of financial aid, identifying the type of loan they hold, and determining its current status (e.g., default, repayment, or deferment). From there, we would explore potential options such as loan forgiveness or forbearance and develop a strategic repayment plan tailored to their financial circumstances.

Erin Kinkade , CFP®, ChFC®

How to avoid losing financial aid 

Maintaining financial aid eligibility requires careful attention to your academic and financial responsibilities. Here are some tips to help you stay on track:

1. Make satisfactory academic progress. Meet your school’s requirements for GPA, course completion, and timely progress toward finishing your program. 
2. Avoid early withdrawal. Withdrawing from school before completing 60% of the term may require repayment of unearned aid. Plan carefully to avoid this situation.
3. Maintain your enrollment status. Stay enrolled at the level required for your aid. Dropping too many classes can lower your enrollment status and affect your funding.
4. Use the funds as intended. Spend your financial aid only on qualified educational expenses, such as tuition, books, and school-related supplies. Misuse can result in losing your aid or needing to repay funds.
5. Follow scholarship or grant rules. Many awards have specific requirements, such as maintaining a minimum GPA or participating in certain activities (e.g., sports). Review and meet these conditions to keep your funding.

Understanding these guidelines will help you keep your financial aid intact and allow you to focus on achieving your academic goals.