Understanding Student Loans: Do You Have To Pay Back FAFSA?

When you’re in college, nothing strikes joy in your heart quite like being told you’re eligible for federal financial aid, and it might feel like it makes all the worries in the world fade away. 

But when it’s time to graduate, your mind will probably turn to the big questions — above all, do you have to pay back FAFSA money? It would be great if there was a simple answer, but your situation depends on the type of aid you received.

To explain this better, let’s go through how the FAFSA works, the factors that determine your repayments and ways to pay the money back more easily if you do owe something.

FAFSA: A quick primer

If you’re reading this, chances are you know a thing or two about the FAFSA already. But to avoid any misconceptions, let’s outline how it works. The Free Application for Federal Student Aid (FAFSA) is a program through which the federal government offers students various forms of financial aid to support their college education. 

Eligibility partly depends on the financial circumstances of a student and their family. But considering $150 billion of aid is available each year, most people stand a pretty good chance of getting something. Plus, there have been some recent changes to the FAFSA to improve access to aid.

To apply, you’ll need to fill out a form before enrollment in each school year. Doing so will determine whether you can access a range of loans and grants. 

Some of the aid is only available to those with financial need — such as the Pell Grant — while others don’t depend on a student’s economic circumstances at all — such as Direct Unsubsidized Loans. Either way, filling in the form provides the information necessary to determine your eligibility for each type of support.

Knowing support can take various forms — i.e., grants, loans, scholarships and work-study placements — is the first piece of the puzzle when figuring out if you have to pay back FAFSA. As touched on before, it’s not the FAFSA you have to pay back per se, rather, it’s the loans you receive through the FAFSA.

Do you have to pay back FAFSA?

You may have to pay back all, some or none of the money you receive through the FAFSA. This comes down to one factor: whether you received the funds as a loan or a form of “free money,” like a grant or scholarship. Money received through the Work-Study Program isn’t exactly free money, but it still falls under the second category since you earn it rather than borrow it.

In most cases, you won’t have to pay back a grant, scholarship or money earned through a work-study placement, but you will have to pay back any loans you receive. However, there are a handful of exceptions that may require you to repay a federal grant:

• You received financial aid from other sources that changed your circumstances

• You left a program early

• You changed your enrollment status — e.g., reducing your hours

• You didn’t meet the requirements of the program (only applies to TEACH grants)

Let’s run through some of the common types of financial aid and support students receive and whether they have to be repaid.

Federal Pell Grants

If you received, or are set to receive, a Pell Grant, you’re in luck: You won’t need to pay a dollar back. These grants are only awarded to those with genuine financial need, so recipients are exempt from repaying the money.

Federal Supplemental Educational Opportunity Grants

The Federal Supplemental Educational Opportunity Grant might be less common than the Pell Grant, but the repayment rules are much the same. You don’t need to pay back the aid you receive because it’s also issued based on need.

Federal Direct Subsidized Loans

The U.S. Department of Education subsidizes Direct Subsidized Loans by paying the interest while you’re still in school, which helps to keep your student loan balances lower. Another interesting point here is that you’ll get a grace period of six months after graduating, during which you won’t have to pay interest. 

These loans are a common type of financial aid that’s available for part-time or full-time undergraduate students with economic need.Because they’re ultimately loans, you’ll have to pay back the money after you graduate, except for the portion that was already subsidized.

Direct Unsubsidized Loans

The U.S. Department of Education also offers unsubsidized loans, meaning you’ll have to pay back the entire amount, including the interest accumulated. Because these loans don’t offer the same level of financial help, they are issued regardless of a student’s financial need. 

Federal Work-Study Program

This program is a little different from the arrangements outlined above; it’s an award that offers paid part-time jobs to students rather than a direct grant or loan. As a result, you don’t have to repay the money you earn.

Direct PLUS Loans

Direct PLUS Loans can take the form of both grad PLUS loans for graduate or professional students or parent PLUS loans, which parents obtain on behalf of their children. Since they’re loans, you’ll have to pay them back, and they generally have higher interest rates than both subsidized and unsubsidized federal loans.

Teacher Education Access for College and Higher Education (TEACH) Grants

TEACH Grants are a more niche type of financial aid given to college students that train to be teachers and work for at least four years in an eligible school or educational service agency. As this is a grant, you won’t need to repay anything as long as you meet the service obligations.

How to pay back FAFSA financial aid

If you’ve figured out that you have to handle repayments for at least some of your FAFSA money, your next question will probably be about how to afford them. The good news is that you have more options than you would if you’d taken out private student loans. 

Also, note that you won’t be paying the money back directly to the lender (the government) but to loan servicers who handle everything on behalf of the government for federal loans. If you have any questions, they’re the ones you need to contact. 

If you’re worried about not having the funds to make your repayments, you may be able to sign up for an alternative repayment plan. By default, students are put onto a Standard Repayment Plan to pay off their loan over a decade. But if you find the payments are too high, you could opt for either the Extended Repayment Plan — longer repayment term for those with a loan balance of $30,000 or more — or the Graduated Repayment Plan, which increases monthly payments gradually over time.

In some cases, you could also consider student loan forgiveness. There are programs that will result in your student loans being partially or fully forgiven if you meet certain criteria, such as working for the public sector for a certain amount of time.

Another option is refinancing, which involves moving your loan to a new lender with new terms. This could be a good idea if another loan provider offers you a lower interest rate. But bear in mind, you’ll have to switch to a private lender, which may make you ineligible for certain benefits, like being able to access student loan forgiveness.

Get your post-graduation finances in order

College costs can be exorbitant, so federal financial aid is a welcome solution — but don’t forget that you may have to pay back financial aid if it comes in the form of loans. Fortunately, if you received grants, scholarships or aid from the Work-Study Program, you won’t owe any money back as long as you stick to the terms and conditions.

Graduating from college can be a tough time for many reasons, but getting a grip on your personal finances could make the period easier. It’s not just your student loan payments you need to worry about but also any credit card debt you may have accumulated. 

If you’re struggling with your card balances, consider using the Tally† app to help you get on track with your repayments. The app will help you stay on top of your credit card debt by automating your payments for you, and it may save you money by consolidating higher-interest credit card balances into one lower-interest line of credit.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.