Do I Have to Pay Back Financial Aid?

For a large majority of those attending colleges and universities, financial aid is not only necessary, but it can serve as a lifesaver for those students working toward their dreams and goals of higher education success. Making sense of financial aid can be confusing since there are so many different types of aid as well as parameters surrounding each type. Financial aid can come in many forms including grants, scholarships, work-study packages, and loans. Sources of this financial aid include state and federal governments, private organizations, banks non-profits, and the colleges and universities themselves. Depending upon the type and source of financial aid, you may actually have to pay it back. Here are the different types of aid to help you better understand if and when it would need to be paid back.

Scholarships

Some financial aid is a gift. Although most scholarships have “small print,” detailing and outlining the exact usage for the funds, they do not have to be paid back. For example, scholarships are “gifts” provided for a variety of different reasons and from a wide range of sources. Scholarships can be found through colleges and universities themselves as well as through a variety of private sources, organizations, and websites including Fastweb and The College Board. Even though scholarships don’t need to be paid back, there is a chance of losing a scholarship (and having to pay the difference out of pocket) due to failure to meet the pre-outlined parameters. For example, if you are receiving a scholarship for your undergraduate engineering degree and then decide to pursue a major in marine biology instead, it is likely that the scholarship will be taken away from you as your major no longer meets the scholarship parameters. Some scholarships have GPA or credit-hour minimums. Make sure you understand all of the requirements and rules before accepting any scholarship. Another important thing to note when scouring for good scholarships: You should never be required to pay an application or processing fee to apply for a scholarship.

Grants or Work-Study Opportunities

Another type of financial aid gift, usually federally or state funded, is called grants. Grants, generally based upon need, do not have to be paid back. Work-study opportunities are also a form of financial aid that may be awarded based upon need. Work-study opportunities may vary in a financial aid package and may be awarded one semester, but not another. The funds earned in work-study are just that...earned. Although you do not need to pay back work-study funds, one thing to keep in mind is that work-study financial aid stipulations may require you to use those funds to pay for college. In some cases, the money earned through your work-study job is directly and immediately put toward your college tuition bill. Other schools may calculate it differently, but it ultimately all comes in the form of a financial aid package and will not need to be paid back.

Federal and Private Loans

Student loans are meant to be paid back. Some loans are private—from local banks or credit unions. Then there are loans that are provided by the government. All of these loans have to be paid back at some point, generally after graduation and with some type of grace period provided. Also, federal student loans generally have some flexible repayment options for income-based repayment, deferment while you are still in school, hardship and other situational forbearance options. There are also loan forgiveness programs that you could investigate, but it is not recommended to take out a loan thinking that it may be forgiven. It is important to assess your financial situation and only take out loans that will be able to pay it back.

One important thing to remember is that Federal Direct Loans are offered in both subsidized and unsubsidized versions. While planning on paying back these types of loans, it is very important to be mindful that subsidized loans are “interest-free” for the student while they are enrolled in school. The government pays the interest on those loans. Unsubsidized loans bear interest while the student is in school that the student needs to pay back, and this interest will continue to accrue for the life of the loan (even during forbearance, deferment, or refinancing). These are a few things to keep in mind when considering how you will pay back financial aid.

If I Transfer, Will I Have to Pay Back Financial Aid?

The reality is that more than one in three students who enroll in either a two- or four-year college will transfer at some point. There are a variety of reasons why students may decide to transfer schools. Although the reason for the transfer does not matter in terms of financial aid, it is important to know when that financial aid does not transfer from one school to another. The new school will need to recalculate your financial need and aid package. This does not mean you need to pay back non-loan funds you have already used, but it does mean updating your FAFSA and receiving an entirely new financial aid package. College-based aid is dependent upon the college itself. The amount of student loans that you have already used will need to be paid back, while the remainder that has not been disbursed will be put back into the government funds. You will likely receive new student loans when you transfer, but they will be calculated anew. Additionally, Fastweb explains, “If you are transferring in the middle of the academic year, the amount of federal student aid for which you are eligible will be reduced by the amount of federal student aid you received and 'earned' at the previous  college.”

You may be able to get more financial aid and scholarships by transferring to a different college. This would happen if you transferred to a school that was priced differently or had other types of aid available for a particular type of student. Most institutions also leave some money available for transfer students. Since scholarships, grants, and work-study programs may have a variety of stipulations attached (they may be school-based, major-based, need-based, etc.), it is important to remember that you will likely lose this aid from your original college, but you will be able to reapply for aid at your new school. The remainder of the unused aid from the school you transferred from will likely be re-deposited into the original fund for another student to use. Ultimately, whether or not you transfer from one school to another or stay at your original school, loans that have been dispersed and used will always have to be paid back.