Do You Have to Pay Back Money You Get From FAFSA?

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Mark Kantrowitz

By Mark Kantrowitz

December 14, 2022

Students who are new to financial aid sometimes ask whether they will have to pay back the money they receive from filling out the FAFSA. The FAFSA is the Free Application for Federal Student Aid. This free application form is used to apply for federal student aid, as well as financial aid from state governments and most colleges and universities.

FAFSA is not the financial aid itself, as it is just an application, so you do not have to pay anything back in that regard. However, students may use the term FAFSA to refer to the financial aid awarded after the student files the FAFSA.

How Financial Aid Is Awarded

Federal student aid is awarded at the school you’re attending based on the FAFSA application and it includes the Federal Pell Grant, Federal Work Study and federal student loans. The FAFSA is also used to award state grants and institutional grants from colleges and universities.

Once you fill out the FAFSA application you can send that application to any school of your choosing. That school will take your information and provide you with a financial aid letter that details what types of financial aid you’ve been approved for and what your total expected out-of-pocket cost will be to attend the school.

It’s important to point out that the FAFSA application is just that, an application. It is an easy way to process your information and streamline the financial aid process for every school. Neither the FAFSA or those who oversee it provide any direct financial aid in the form of grants or student loans.

Types of Financial Aid That Don’t Need to be Paid Back

Not all financial aid that you receive must be repaid. When you fill out the FAFSA you get verified to receive all different kinds of money for college, and a lot of it is money that you earn or that is awarded to you that isn’t repaid. Here are the types of financial aid you don’t have to pay back:

  • Grants: A grant is essentially free money for you to go to school that is awarded for a specific purpose. There are federal grants that are awarded based on financial aid and there are other grants that you can win or earn.
  • Scholarships: A scholarship is earned money that you receive for school that isn’t paid back. A good example is an athletic scholarship, which covers the tuition cost of going to the school in exchange for the student to play on a specific athletic team.
  • Work/Study: Any money earned through a work/study program was earned and does not have to be paid back.

This is a quick list that represents the majority of the money that is paid out through the financial aid process and that isn’t paid back.

What Types of Financial Aid Must Be Repaid

Student loans are the primary form of financial aid that must be repaid, usually with interest on top of the borrowed amount. Federal student loans may be subsidized or unsubsidized. If your loan is subsidized, the federal government pays the interest while you are in school and during any grace periods.

Interest on unsubsidized student loans begins to accrue right away, and it is not covered by the federal government. Subsidized loans are awarded based on a student’s financial need, unsubsidized loans are not.

So, you do have to pay back some types of financial aid awarded through the FAFSA process, but not all types of aid.

Who Do Students Pay for Student Loans?

When you agree to take out student loans as part of your financial aid package, you’ll be given a loan servicing company that actually provides the funds and manages your loan account.

This is who you will repay unless the servicing company resells your loan to another servicing company before you enter repayment. If that happens then you’ll be notified.

Any amount of loans that you take out must be repaid, and you’ll likely be charged interest either as soon as you take out the loans or once you hit the repayment period. If you end up not using all of the money you borrowed for school then there is a possibility of either returning that money or using it to pay down your balance.

Using a 529 Plan to Pay for College

If you’re in a position to start saving for college before you go, or before you child goes, then that is always the best option. You can open a 529 plan and start growing the total account size by investing the funds through a tax-advantaged account. This gives your child the best chance at minimizing the their total need for financial aid.

With 529 plan funds you’ll never have to worry about borrowing or paying anyone back because it is money that you’ve saved and grown in the market. This is similar to if you put money in your own savings account and decided to pay cash for school.

These 529 plans were specifically created to help college students save money and let it grow in a tax-free manner, as long as the funds are used for qualified college expenses. You do not need to fill out the FAFSA to open a 529 plan.

The Bottom Line

The FAFSA is an application that you fill out in order for the colleges you’re interested in, or are attending, can provide you with a financial aid award letter. This letter tells you what type of financial aid you’re approved for. If you receive student loans through this process then that is money that you must repay, directly to your assigned loan servicing company, after you graduate.

Frequently Asked Questions (FAQs)

If you fail a class, do you have to pay back your FAFSA financial aid?

No, failing a class doesn’t mean that you’ll be forced to pay back any money that you received for that class. It could mean that you’ll lose out on future money because you didn’t perform well, though. An example of this would be that if you fail a class and you were on an academic scholarship then the school might take that scholarship away for the next semester.

If you take out student loans, though, you’ll be asked to repay that money either way and if you fail out of school then your repayment period could begin.

Can FAFSA loan debt be forgiven or canceled?

The money you get through the financial aid process and filling out the FAFSA is the same as any other college financial aid process you’ve heard about before. This debt can be forgiven in certain circumstances but it is pretty rare.

Can you earn scholarships outside of the FAFSA?

Yes, there are many scholarships that can be earned that have nothing to do with how much you receive due to your FAFSA application. These scholarships are typically won for a specific purpose and could be from numerous types of companies or individuals awarding the money for college.

Additional Resources

A good place to start:

See the best 529 plans, personalized for you