Financial challenges can be a barrier to getting a degree. The tuition fee, extra costs for books, supplies, accommodation, and transportation make it harder and harder for people in need to achieve their academic goals.
Luckily, different funding sources exist to finance educational aspirations. Student loan programs, scholarships, or grants help thousands of students to get a decent degree.
While some of these programs do not require repayment, others certainly do. External funding sources are sweet until the student realizes that there is a long repayment period awaiting. Hence, it is advisable to know from the beginning that student aid programs create financial obligations for students.
What is FAFSA?
FAFSA stands for Free Application for Federal Student Aid which helps students to submit their requests for federal funding programs for educational goals. Whether you want to apply for a federal student loan or scholarship program, you need to fill this application form. Around 66% of students use FAFSA to get financial aid.
Students need to apply with a FAFSA form before each academic year starts. The form involves information like name, birth date, address, citizenship, Social Security number, federal tax data, etc. Based on the provided information, the schools determine whether you qualify for financial aid programs.
Do You Have to Pay Back FAFSA or Financial Aid?
The answer to this question depends on the type of program you are applying to. Federal student aid programs usually provide three types of help:
- Student loans
- Work-study programs
We will explain each program and repayment issue in detail in subsequent sections. For now, keep in mind that you are required to repay student loans. Those are obligations that have to be repaid starting six months after graduation. However, student loan forgiveness and discharge programs also exist that can help borrowers cancel the repayment.
Meanwhile, grants usually do not require repayment. Grants are distributed to eligible students based on many factors, such as financial need or academic merits. If the student maintains eligibility during the study period, there is no need to repay the grant.
Lastly, work-study programs do not involve repayment as their nature is more like employment. The students work part-time while studying and earn some extra income in return for their service. Hence, repayment can be viewed as a service rather than monetary payback.
Those are short details about FAFSA repayment. Now, let’s look at each program in more detail.
1. Student Loans
Student loans have a special place among student aid programs because they involve a long list of repayment obligations. Unfortunately, that is one of the common reasons why many borrowers are struggling with their student debt. If borrowers do not fully realize the responsibility, they face challenges when it is finally the time to repay the loan.
What is Interest in Student Loans?
Student loans are a source of funding that involves repayment of both the amount borrowed initially and some interest. Interest rate is a percentage of unpaid debt that the borrower pays every month. Usually, federal student loans have lower interest rates than private loans. Currently, the interest rates for federal loans are as following:
- Direct Subsidized Loans- 3.73%
- Direct Unsubsidized Loans- 5.28%
- Direct PLUS Loans- 6.28%
The Education Department of the U.S is responsible for setting interest rates.
When does Student Loan Repayment Start?
Generally, federal student loans are flexible to accommodate borrowers’ needs. They mainly do not require repayment until six months after graduation. It means, if the borrowers are still studying or in a grace period- 6 months- they do not need to repay the debt.
Additionally, there are some periods, called forbearance and deferment- when repayment is not needed. However, interest payments will accumulate. If the borrower does not pay interest, they will accumulate and be added to the original debt balance.
Is There a Way to Avoid Repayment?
This type of FAFSA requires repayment. However, borrowers have some options to avoid repayment. Student loan forgiveness and discharge programs, as names suggest, help borrowers eliminate their debt. There exist several such programs:
- Borrowers’ Defense to Repayment
- Public Service Loan Forgiveness
- Teacher Loan Forgiveness
- Closed School Discharge
- Total and Permanent Disability Discharge, etc.
As an example, let’s understand how Public Service Loan Forgiveness can stop repayment. If a borrower agrees to repay a qualifying debt 120 times (which takes a minimum of 10 years), the remaining debt will be erased. Therefore, whatever balance is left, the borrower does not have to repay.
2. Federal Grants
Another funding source is a federal grant. Federal grants are like financial gifts which do not require payback. Such financial aid options are usually distributed based on the financial need of students. If you can prove a considerable need for funding education, you can qualify for a grant. Some grant options are as following:
- Pell Grant
- Teacher Education Assistance for College and Higher Education
- Federal Supplemental Educational Opportunity Grants, etc.
Although these programs initially do not require repayment, the students might be asked to pay back the grant in some cases. Such cases usually happen if the student becomes ineligible for the grant.
For instance, getting a grant from another source (non-profit organization or private company), withdrawing from the study program, or changing enrollment status can make you subject to repayment. If you become ineligible, you will be informed about repayment obligation, which should be fulfilled within 45 days. Repayment can be in full or partial amount.
3. Work-Study Programs
Work-study programs also allow students to get funds for their educational expenses. However, they work differently compared to loans and grants. Loans and grants cover the costs upfront and might or might not require repayment (in the case of grants).
However, work-study programs do not allocate significant funding to the students directly. Instead, they work like employment opportunities. The students work for some hours part-time and earn their extra money hourly or monthly.
It is possible to find work-study programs within the school’s campus or outside. For example, some popular schools have partnerships with private companies. In this way, they can help students to find part-time employment opportunities in their study field.
The funding the students earn depends on the service type. However, the minimum wage requirement also applies to such services. The exact rate of hourly or monthly work changes based on funding amount, financial need, or application time.
The repayment does not apply to such FAFSA programs as the students provide service in return. However, if you need upfront money to finance education, this option might not be helpful.
You already know the complete answer to “Do you have to pay back FAFSA or financial aid?” In short, the answer depends on the type of FAFSA program.
If you apply for student debt, you definitely need to consider and follow the rules for repayment. Yet, some forgiveness programs such as PSLFP can help you avoid repayment.
When it comes to grants, payback is mainly not required. If you become ineligible and go against the qualifications, you might be asked to pay back financial aid, partially or fully.
Lastly, work-study programs are part-time service opportunities. The students earn money by doing some work, so they are not required to pay back the money.