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Financial Aid

Do You Have To Pay Back Financial Aid?

Updated May 06, 2021   |   11 mins read

Financial aid is one of the most important services that the federal government provides citizens right now, and there are currently millions of Americans who are benefiting from these services. However, one of the key issues facing students once they do fill out their FAFSA forms is; will they have to pay back their financial aid?

Answering that question is not as straightforward as it may seem, as the government gives out a variety of different types of aid depending on the situation. Students are eligible for three types of financial aid: grants, scholarships and loans. The different loans all have different terms depending on who borrowed the money, whether a parent or the student themselves, and the type of loan that was granted.

For instance, there are certain loans that are given to students that do not have to be paid back until the student has completed their course, while there are others that will require the student to pay back the loan as they study.

However, it must be noted that student loans have some of the most attractive terms you can find. Parent loans usually require the parent to start paying back the loan immediately, or a couple of months after the disbursement of the funds. Nonetheless, parents can ask for loans to be deferred by contacting their lender and making a formal request.

>> Read More: How does financial aid work?

FAFSA Loans and the Application Process

The best thing about FAFSA loans is that you have the freedom to accept or decline each part of the loan. For instance, if your loan requires you to carry out work study and you think that it is not in your best interest to do so at that time, you can choose to reject that particular part of the agreement, and take it up again in the future when you feel you are ready and if the offer is still on the table.

Once you have completed your FAFSA application and have gained acceptance to the schools that you applied to, each institution will begin to evaluate your eligibility depending on their charges. Your eligibility for admission will change depending on the charges that each institution has in place.

The process is quite simple, and is outlined below:

  • You first fill in the FAFSA form online. The best time to do this is in the same calendar year you will be attending college, preferably as soon after New Year’s Day as possible. Please note that you will need to hand in your previous year’s tax information to complete the form
  • ​Once this is done, FAFSA will calculate how much your family needs to contribute towards your college education, otherwise known as your EFC or Expected Family Contribution
  • ​The data that they collect will then be sent to the different educational institutions of your choice
  • ​The institutions that you were interested in that you applied and were accepted to will then begin to evaluate you to determine what you are eligible for, and communicate the results to you through an award letter
  • ​You will then choose from the different options you have been given, declining or accepting different terms as you and your family see fit
  • Remember that the FAFSA applications must be made every year

When you are completing your FAFSA application, it is important that you apply for everything, including scholarships and grants. Doing so may go a long way in saving you a lot of money or a lengthy repayment period. Despite the fact that you may feel you do not qualify, you could find that you do qualify, meaning that you will not have to worry about any future debt. FAFSA applications do not necessarily have to be made by current students either.

If you have already completed college but are finding it hard to repay the loans you took out, you do have the option to refinance student loans. If you choose to refinance, you could lower your interest rate and even extend the repayment period of the loan. A lower interest rate sounds great, but keep in mind that you need to qualify for that rate via the underwriting and application process of individual lenders.

Types of Financial Aid

As mentioned above, there are three main options that you will be asked to choose from: grants, scholarships and loans. These loans may have a few similarities, but fundamentally they are very different. Below is an overview of the different types of loans, their repayment methods, and the different criterial that may be used to determine your eligibility for a federal loan.


Scholarships are basically a form of gift aid, and those who are lucky enough to get them do not usually have to worry about repayment. Despite this, it is possible to have a scholarship cancelled, especially if the requirements for the scholarship have not been met. For instance, if you are supposed to maintain a GPA of 3.5 to keep your scholarship and it drops below this level, even if it is 3.49, you could lose your scholarship. If you do lose your scholarship you will have to cover the rest of your college costs on your own.

Scholarships are not only offered by the federal government, as organizations, including the educational institutions themselves, employers, individuals, private companies, nonprofit organizations, communities, religious groups and institutions, and professional and social organizations can also offer their own scholarships. These scholarships all have different requirements such as academic or sporting excellence and need.

As FAFSA is scrutinized by the learning institutions, it can actually help you qualify for a scholarship from your school. However, it is important to note that many scholarships, including federal scholarships are quite few, and a lot of the time you are going to have to come up with the funds that are not covered. Additionally, they are based on the fact that you have applied directly to the institution that awarded them.

Finding a Scholarship

This means that if you would like to get a scholarship, you are going to have to go looking for it. This will mean a lot of research on your part, as you are going to have to find the different institutions that are giving out scholarships and also to find out if you qualify for the scholarships that they are offering. You will also have to keep in mind that some of these scholarships are very competitive, as they are usually few and far between, with hundreds, sometimes thousands of people applying for the funds.

Scholarships such as the National Merit Scholarship are extremely hard to get thanks to their popularity, however, some of the other smaller scholarships are much easier to get, especially if they are local or regional scholarships. The only way you will know for sure though is if you apply for the scholarships.

Regardless of whether the scholarship cheque is sent straight to you or to your institution, you must keep in mind that the monies that you receive, combined with any other financial aid you may be receiving, cannot amount to more than it costs for you to attend your chosen financial institution.

Therefore, the more scholarships and grants that you get, the less loan money you will be able to receive. This is actually a good thing, as it means that you will not have to pay as much in the future when it comes to repaying your loans.


Grants are much like scholarships, and are considered by the Department of Education to be a form of need-based aid that does not require repayment in most cases. However, that does not mean that once you are given a grant you will not have to pay anything back. On the contrary, there are certain circumstances that will require you to repay the grant that you were given.

For instance, if you were to quit school or withdraw from a particular semester that was paid for with grant funds, you will be required to pay the grant back. Additionally, if something happens that ensures that you no longer qualify for a grant, for instance, if you were to be convicted of a drug offence, you may have to repay the grant.

There are a number of different federal grants, with the most popular being Federal Pell Grants. However, there are also Federal Supplemental Educational Opportunity Grants, (FSEOG), and Teacher Education Assistance for College and Higher Education Grants (TEACH). There are even special grants such as the Iraq and Afghanistan Service Grant, which are awarded to those who have had parents killed in the wars that we have waged in the respective countries.

Similarities Between Grants and Scholarships

However, Federal Grants are not the only grants that you can get. Just like with scholarships, you may be able to get a grant from your state government, the educational institution that you are attending or planning to attend, public and private companies, even nonprofit organizations.

Additionally, just like scholarships, many of the non-federal grants that you can be awarded also use FAFSA information to choose suitable candidates. Nevertheless, many of these organizations also have their own screening processes, and you may have to go through additional or alternative application processes to qualify for a non-federal grant.

You must keep in mind that the similarities between grants and scholarships do not stop there, as grants are also notoriously hard to get. If you would like to get a grant, especially a non-federal grant, you will have to be proactive, and do as much research as you can to find the right grant for you.

Student Loans

The main difference between grants, scholarships and student loans is that with student loans, all the money that you receive must be paid back with interest. There are very few exceptions to this rule, and even if you do not complete your course, you feel you did not receive the education you deserved, even if you experience financial difficulties or health problems, you will have to repay your loan.

However, the forgiveness of student loans is possible if you fit certain criteria. For instance, if you are disabled and therefore unable to work, or the financial institution that you were using closed down you could be eligible for loan forgiveness. Forgiveness is also given to those who have gone through bankruptcy if they can show the bankruptcy court that paying back their loans will cause then unnecessary adversity.

The fact that loan forgiveness is so hard to attain, and that the interest rateson some loans can be quite high, makes grants and scholarships much more attractive to students. However, as attractive as grants and scholarships may be, students rarely get enough money to cover all their college bills from this “free aid”.

Difference Between Federal and Private Student Loans

Federal loans are awarded according to financial need, and carry a number of benefits including access to forbearance, deferment, and payment plans that are sensitive to your income. There are certain federal loans that are subsidized, meaning that the government pays the interest on the loans during certain periods.

Like grants and scholarships, student loans can also be issued by a private student loan lender. However, many of these loans are given based on your financial criteria, with many institutions focusing on your credit score. These private loans rarely come with the same benefits that you get from federal loans, and none of them are subsidized, making federal loans the better choice for those looking for student loans.

The best thing about federal direct loans is that they are much easier to obtain, and the funds that you receive are usually much higher than with grants and scholarships. All you need to do is complete one or two forms and you will have access to all the money that you require to complete college or university. However, if you put in a little effort and do the legwork required to find and apply for scholarships and grants, you could save yourself decades of student loan repayment.

>> Read More: What dropping out means for financial aid