Do You Have to Pay Back Financial Aid?

It’s not uncommon to wonder how you’ll pay for your education when you receive that coveted college acceptance letter or email. If you and your family cannot pay for your tuition outright, there are a few financial options available to you to consider.

You can apply for different types of financial aid to help pay for your college education. Scholarships, student loans and grants are the types of support you might find in your federal financial aid package.

Before you start filling out applications, you should know what you’re applying for, as well as what financial aid you’ll be expected to pay back after you graduate.

Do you have to pay back financial aid? The answer is yes — and no. The financial aid you receive will dictate what you’ll be obligated to pay back. Let’s explore your options.

Do you have to pay back scholarships?

Scholarships are considered gifts and do not have to be paid back. The other great news about scholarships is they are plentiful. You can apply for as many as you want, in order to pay for college costs.

Scholarships come from a lot of places, such as schools, companies, nonprofit organizations, individual donors, religious groups and more.

Because college scholarships are merit-based, you have to meet or exceed any standards the awarding entity sets. Scholarships are usually awarded for academic excellence, athletic achievements or other special talents like music, writing or art. Other scholarships are given on a financial need basis or cater to particular groups of people, such as women, military families or students going to college to study a certain subject.

You could pay for your entire tuition if you win enough scholarships or get enough to help pay for your books. It’s worth your time to apply for as many as you can, however, because every scholarship dollar helps bring down your out-of-pocket cost for your education. And again, you don’t have to worry about paying back those funds.

Do you have to pay back financial aid grants?

Like scholarships, student loan grants are “free money” for your education. You do not have to pay back grants.

Although grants and scholarships are both considered “gift aid,” they are not the same. Scholarships are merit-based, whereas grants are strictly based on financial need. The federal government, state government, colleges and nonprofit organizations usually award these need-based grants.

You must submit a Free Application for Federal Student Aid (FAFSA) in order to be eligible for most grants. Here are the types of federal grants that the U.S. Department of Education Offers:

Federal Pell Grants

Federal Pell Grants are usually awarded to undergraduate students who show significant financial need or have not earned a post-secondary degree. The Federal Pell Grant amount awarded varies by the recipient. Some factors include the applicant’s expected family contribution, tuition cost and whether the applicant will be full or part-time student. The maximum Federal Pell Grant award was $6,895 for the 2022-23 school year.

Federal Supplemental Educational Opportunity Grants

Federal Supplemental Educational Opportunity Grants (FSEOG) come directly from participating school’s financial aid office. Schools will award FSEOG’s to students who have the most financial need. Applicants can receive between $100 to $4,000 per year depending on their financial need, how much other financial aid they receive and their school’s available funds.

Iraq and Afghanistan Service Grants

Iraq and Afghanistan Service Grants are awarded to students whose parent or guardian died during their military service in Iraq or Afghanistan after the events of 9/11. Students who are ineligible for a Federal Pell Grant due to their expected family contribution may apply for the Iraq and Afghanistan Service Grant. The award amount is equal to the maximum Federal Pell Grant in a given school year.

Teacher Education Assistance for College and Higher Education

Teacher Education Assistance for College and Higher Education (TEACH) Grants are available to students who plan to become a teacher in a high-need field in a low-income area. The TEACH Grant differs from other federal student loan grants because it’s contingent on your post-collegiate career. TEACH Grant recipients must work in a high-need field at a school that serves low-income families for at least four full academic years within eight years of finishing school. Otherwise, the grant turns into a direct unsubsidized student loan, which must be repaid.

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Where do student loans fit in?

Student loans fulfill the “yes” part of the answer to the “do you have to pay back financial aid” question. Because you have to repay student loans, they should be your last resort when it comes to pursuing financial aid. Try to acquire as much gift aid as you can through grants and scholarships.

Federal student loans

If you do have to use student loans, start with federal loans instead of private ones. You have to repay both, but federal student loans offer a number of benefits, including:

• Student loan forgiveness programs, including Public Service Loan Forgiveness Program
• Income-driven repayment (IDR) plans to make student loan repayment and monthly payments more manageable
• Various repayment options
• No credit checks for direct unsubsidized and subsidized federal student loans

The U.S. Department of Education offers the following federal student loans:

1. Direct subsidized loans — for undergraduate students who display financial need to help pay for their education.
2. Direct unsubsidized loans — for undergraduate, graduate and professional students. Eligibility is not based on financial need, however.
3. Direct PLUS loans — for graduate or professional students, as well as parents of dependent undergrads, to help pay for educational expenses that other financial aid won’t cover (A credit check is required.)
4. Direct Consolidation loan — allows borrowers to consolidate all of their eligible federal student loans into one.

However, there are also downsides to using federal student loans. You cannot choose who your loan servicer is, and there’s a ceiling on how much you can borrow — neither of which is an issue when you use private student loans.

Private student loans

Once you’ve exhausted your grant, scholarship, and federal student loan financial aid options, look into private loans.

While federal loans are viewed as a more viable option for college students, private student loans are not without their benefits. If you have strong credit, you could secure a lower interest rate with a private student loan than a federal one.

Second, private student loans come from individual lenders. In other words, you get to choose who will handle your student loan and who you'll make loan payments to. Plus, you’re not limited to how much you can borrow. Just make sure you know exactly how much you need.

There’s no sense to borrow a dollar more than necessary; the less money that falls under the “loan” category in your financial aid package, the better.

How to determine if you need to pay back your financial aid

“Do you have to pay back financial aid?” can be answered simply by recognizing scholarships and grants as “gifts” (so, no) and student loans as money you’re borrowing (so, yes). If there’s still any confusion, a promissory note will clear things up for you.

A promissory note is a legal document you sign that states you will repay your federal student loan debt along with any accrued interest and fees. Once you’ve accepted your financial aid package, you’ll sign your promissory note, which will lay out who your student loan lender is as well as your student loan’s terms and conditions.

If your financial aid package will include student loans, Student Loan Planner® offers a pre-debt consult for people planning to attend college. We work with you to come up with a clear plan upfront that can help ease some of the anxieties you may encounter as you figure out how you’ll pay for college.