You are currently viewing Do You Have To Pay Back Financial Aid? – Forbes

Do You Have To Pay Back Financial Aid? – Forbes

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Published: Dec 29, 2021, 7:00am
College in the United States is expensive—the outstanding student debt totals more than $1.5 trillion nationally and the average borrower owes about $32,000. With numbers like that, it’s common to want to reduce the amount you must pay for your degree.
The first step toward lowering your education costs is to complete the Free Application for Federal Student Aid (FAFSA). This form, which must be submitted annually, is your gateway to the scholarships, grants and loans you may need to fund your education. While a portion of that aid is free money that doesn’t need to be repaid, other forms of financial aid must be paid back either while you’re still in school or soon after graduation.
See what types of financial awards don’t need to be repaid, and which ones do—along with ways you can reduce what you owe.
Some types of financial aid are considered free money, or aid that doesn’t need to be paid back. If you can access these opportunities, it’s wise to max out these options first before turning to other funding sources.
Grants are typically offered by federal, state or local governments, colleges and universities, and private organizations. These awards are often based on financial need, and you usually need to submit income documentation to be eligible. Other grants may be awarded based on various factors, including your ethnicity, field of study or your family’s military affiliation.
You may become automatically eligible for some awards, including the federal Pell Grant, after submitting your FAFSA. If you’re not automatically eligible for grants from the government or your school, you can search and apply for grants individually.
Some grants have certain rules and obligations that must be met. Federal TEACH Grants, for example, require recipients to teach full-time for four years in a high-need field; if you fail to do so, the grant will be converted into a loan and you’ll be required to repay it.
While grants are typically based on need, scholarships tend to be based on merit. But scholarships aren’t only awarded to straight-A students or star athletes—there are thousands of scholarships based on applicants’ interests, racial background, sexual orientation, career path and more.
You may be automatically eligible for scholarships from your college or university, but you can also search and apply for awards starting in high school.
The federal work-study program is offered to students with financial need. If you qualify, you must work in an eligible part-time position where you can earn money to finance your education. These jobs are often available on campus, and might even relate to your field of study.
Since you’re working to earn money and fund your education, you’re not borrowing money that needs to be paid back.
After you’ve exhausted all of your free options to pay for school, you can turn to other funding opportunities. Student loans are financial aid options that must be repaid—with interest.
Federal student loans are offered by the Department of Education for college-related expenses including tuition, fees, books, and room and board. You can also use loans to pay for transportation to and from campus, child care while you’re in class and some housing costs, like furniture.
Federal loans must be paid back based on the terms detailed in your loan agreement and your repayment plan. You can borrow what you need to pay for school and start repayment once you graduate or drop below half-time enrollment.
Even though you have to repay the money, federal student loans offer flexible repayment plans. For instance, if you can’t afford your payments, you can temporarily pause them through deferment or forbearance. You can also enroll in an income-driven repayment (IDR) plan, where your monthly payments are based on your income and household size. After 20 or 25 years—depending on the IDR plan you’re in—the remaining balance is forgiven.
Student loan forgiveness is only an option for federal student loans, but there are several forgiveness programs on offer. Along with IDR plans, both Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF) are possible if you have federal loans and meet the requirements. Forgiveness doesn’t eliminate your repayment obligations entirely, but it does mean you won’t be required to repay the full amount.
While federal student loans come from the federal government, private student loans come from private companies like online lenders, banks and credit unions. When you’ve exhausted all your free money options and hit your limit with federal student loans, private student loans can help cover any funding gaps.
Private student loans must be paid back, but when you start repayment depends on your lender. Most lenders offer the same terms as federal student loans, giving you the chance to graduate or drop below half-time enrollment before you start making payments. But you’ll need to check with each individual lender to make sure.
Private student loans generally don’t offer income-driven repayment plans or forgiveness like federal student loans do. Some lenders offer deferment options, but it’s not offered across the board. But that doesn’t mean you can’t get help repaying your student debt; some programs will help you pay off your private student loans if you can meet certain obligations.
As you’re finding ways to pay for college, there are a few ways to reduce what you need to pay back in financial aid.
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo! Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.

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