Without financial aid, many—if not most—American college students would be unable to attend college or obtain degrees. Like the term suggests, financial aid is a sum of money that helps a student pay for tuition and living expenses. However, the while in school. But do you have to pay back financial aid?
The term “financial aid” includes a variety of different types and sources of financial assistance, each of which comes with its own set of rules. Because financial aid is such a broad category, one of the most common questions students ask when going through the process of applying for financial aid is, “Do you have to pay back financial aid?” The answer to that question depends on the type and source of financial aid you receive.
Is FAFSA free or a loan?
The FAFSA (Free Application for Federal Student Aid) is an application which covers several different sources of financial aid. Some of these types of financial aid, like Pell Grants, do not need to be paid back, while other types, like federal student loans, must be paid back.
Where Does Financial Aid Come From?
There are two main types of financial aid you can receive, and there are four main sources from which these funds can come from. The type of financial aid you receive, and the provider of this financial aid, will determine whether/how much of your financial aid must be paid back, and when.
Types of Financial Aid
There are two basic categories which financial aid can fall into:
- Gift Aid
- Self-Help Aid
Sources of Financial Aid
And there are four main sources of financial aid:
- Federal government (largest source)
- State government
- Private organizations or foundations
Gift and Need-Based Aid
Gift aid, the first type of student financial aid, includes scholarships and need-based grants. As the name of this category would suggest, this type of financial aid does not need to be paid back. There are several different types of gift aid you might apply for and receive.
1. Pell Grant
A Pell Grant is a need-based grant provided by the federal government. Pell Grants are an entitlement, which means that if you meet the qualifications, you receive the grant. About one in three undergraduates receive this grant, and the maximum award in 2017-18 was $5,920. The amount of money you receive from your Pell Grant depends on your financial need, as well as other factors.
Am I Eligible for a Pell Grant?
To receive a Pell Grant, you must meet the following criteria:
- Be a U.S. citizen or eligible non-citizen
- Have graduated high school or earned your GED
- Be an undergraduate who has not yet earned a bachelor’s degree (there are some exceptions to this rule for students in teaching programs)
- Be enrolled or accepted in an eligible degree/certificate program
Do I have to pay back the federal Pell grant?
No. Unlike loans, grants are a type of financial aid that does not have to be paid back, as long as you continue to meet your school’s SAP (satisfactory academic progress).
2. State Grants
In addition to federal financial aid like the Pell Grant, you may also be eligible for financial aid from your state government. Like Pell Grants, state grants do not have to be paid back.
State grants for full-time students can range from $200 (in 10 states) to over $1000 (in 14 states).
3. Private Organizations (Scholarships)
Private scholarships are another way to fund your degree, although this source makes up a relatively small percentage of the total gift aid received by students. This type of aid is usually based on merit, and you do not have to pay it back. Here is our private scholarship, which does not need to be paid back.
4. College/University Aid
Your college or university holds possibly the greatest potential for gift aid. If you do not meet the eligibility requirements for Pell Grants, other federal aid, or state grants, you may still be eligible for gift aid from your college itself.
Both private and public colleges provide aid to their students, but private colleges and universities usually have a much larger pool from which to draw this assistance.
Self-Help or Non-Need-Based Aid
Self-help aid is the category of financial aid which includes loans (sums of money which must be repaid) and things like campus employment.
1. Direct Student Loan Program (Stafford Loan)
No matter your financial need, if you’re a student, you can receive financial aid in the form of a Direct Student Loan, formally called a Stafford Loan. If you meet certain financial need criteria, you may receive a subsidized loan (interest-free) during your enrollment. If you do not meet the financial need requirements, you’ll be responsible for paying interest on your loan (unsubsidized). Direct Loans are installment credit and must be paid back.
2. Campus Employment
While it does not come in the form of direct monetary aid, another type of financial assistance your college or university may offer is campus employment to help you support yourself through school. Schools often offer a tuition waiver for graduate students.
Applying for Financial Aid
If you’ve made it through a year or two or high school, or you’re the parent of a high school student, then you know that the first step in applying for aid is filling out the FAFSA (Free Application for Federal Student Aid). You’ll provide as many details about yourself and your financial state as possible, before hitting “send” (or mailing your paper copy, if you so choose). But then what happens?
What Types of Financial Aid Does the FAFSA Cover?
After you send out your financial aid application, educational institutions will use this information to determine your eligibility status for financial aid. Other institutions and sources of aid may require you to apply separately.
Your FAFSA information is shared with the colleges, universities, or technical schools you added to your application. Each school has its own financial aid office, which will calculate the amount of federal student aid you would receive if you decided to attend that school. This includes both subsidized and unsubsidized direct loans.
University or College Aid (Sometimes)
The school may or may not also use the information from your FAFSA to determine if you’re eligible for any financial aid programs provided by the school itself. Many schools use separate or additional forms to make this determination, so make sure you check with each school’s financial aid department.
Your FAFSA information will also be reviewed by your state’s higher education agency. Based on this information, you may receive financial aid funds in the form of grants from the state government.
What Happens if You Fail?
When you apply for college and for financial aid, you never plan to fail or drop out. However, it’s always wise to plan for the worst-case scenario.
In general, the best way to approach your financial aid if you must drop out or you are failing one or more classes is to speak directly to your school’s financial aid office. They’ll be able to give you the specifics about how your university or college handles these situations. Failing one class usually will not impact your SAP. Financial aid will allow you to retake the class until you get a D or better. As a rule, if you can show that you put effort into passing your classes, you won’t be penalized.
Failing all of your classes, on the other hand, can result in your having to pay back any financial, including grants in some cases. You will also be unable to register for future classes or apply for future financial aid until that money is repaid. Failing or dropping out can also result in the loss of any scholarships.
Filling out your FAFSA and understanding the basics of financial aid is a great way to get started in planning your academic future financially. After you’ve done that, you’re well on your way to success in college—academically and financially!
Compare the Best Student Loan Refinance Rates
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.