FAFSA gives you both grants and loans — you repay only the loans

Not all FAFSA money is a loan. The federal government sends two types of aid through FAFSA: grants (which you keep) and loans (which you repay). Grants are assistance programs based on financial need. Loans are borrowed money you begin repaying after you leave school or drop below half-time enrollment.

The key difference: if your aid package includes a Pell Grant, you do not repay it. If it includes a Direct Subsidized Loan or Direct Unsubsidized Loan, you do. Your financial aid award letter from your school will list each type separately, so you can see exactly what you owe and what you do not.

Key Takeaways

  • Pell Grants and other federal grants do not require repayment under any circumstance.
  • Federal loans (Direct Subsidized and Unsubsidized) must be repaid, with repayment beginning six months after you graduate or leave school.
  • Your school's financial aid award letter shows which aid is a grant and which is a loan.
  • Loan repayment terms, interest rates, and forgiveness programs depend on the loan type, not on your FAFSA application itself.
  • If you do not use all your loan funds, you can decline the portion you do not need.

Grants you do not repay

Federal Pell Grants are the most common grant available through FAFSA. The amount depends on your Expected Family Contribution (now called the Student Aid Index), your enrollment status, and your school's cost of attendance. Pell Grants are need-based and do not require repayment.

Your school may also offer other grants — sometimes called institutional grants or merit scholarships — through your FAFSA information. These also do not require repayment. Some states offer additional grant programs to residents. None of these grants become loans or debts you must repay.

Loans you must repay

Direct Subsidized Loans and Direct Unsubsidized Loans are federal loans. Both appear on your aid package and both require repayment. The difference between them is that the government pays the interest on a Subsidized Loan while you are in school, but you pay all interest on an Unsubsidized Loan from the moment it is disbursed.

Repayment begins six months after you graduate, leave school, or enroll below half-time status. This six-month period is called the grace period. During this time, you do not make payments, but interest continues to accrue on Unsubsidized Loans.

Your school will provide information about your loan servicer — the company that manages your payments. You can also find your loans and servicer at studentaid.gov by logging in with your FSA ID.

How to know what you owe before you borrow

Your financial aid award letter lists every aid source and labels each as a grant or loan. Read this letter carefully before accepting any aid. If you do not understand whether something is a grant or loan, contact your school's financial aid office — they can explain each line.

You can also decline loans you do not need. If your award includes $5,500 in loans but you only need $3,000, you can accept just the $3,000. Declining part or all of your loan does not affect your grant money. Many students decline loans to reduce future debt, especially if they have other funding sources.

Interest rates and repayment terms

Federal student loan interest rates are set by Congress and change each year. Direct Subsidized and Unsubsidized Loans currently carry the same interest rate, which is fixed for the life of the loan. The rate for loans disbursed in the 2024–2025 school year is different from the rate for loans disbursed in 2023–2024, so check your promissory note or loan servicer for your specific rate.

Repayment plans vary. The standard plan is 10 years. Income-driven plans stretch payments over 20 to 25 years based on your income after graduation. You choose your plan when repayment begins, and you can change plans later if your circumstances change.

Parent PLUS loans and private loans

If your FAFSA package includes a Parent PLUS Loan, that is a loan your parent borrowed on your behalf. Your parent is responsible for repayment, not you — unless you later consolidate it into your own loans. Parent PLUS loans have higher interest rates than Direct Loans and begin repayment sooner.

Private student loans from banks or other lenders are separate from FAFSA. These do not appear on your FAFSA award letter. If you took out private loans, you repay them according to the terms you agreed to with the lender, not based on FAFSA rules.

What happens if you do not repay

Federal student loans have serious consequences for non-payment. Your loan goes into default if you do not make a payment for 270 days. Default damages your credit, can lead to wage garnishment, and may result in loss of future federal aid. The government can also offset your tax refunds to pay down the debt.

If you are struggling with payments, contact your loan servicer before you miss a payment. Income-driven repayment plans can lower your monthly payment to as little as $0 if your income is very low. Deferment and forbearance programs can pause payments temporarily. These options exist specifically to help borrowers avoid default.

Frequently Asked Questions

Do I have to repay a Pell Grant if I drop out?

No. Pell Grants do not require repayment regardless of whether you complete your degree. However, if you withdraw from school partway through a term, your school may require you to return a portion of the grant based on how long you attended. Contact your financial aid office about your specific situation.

What if I took out a loan but did not use all the money?

You can decline the portion you did not use. Contact your school's financial aid office or your loan servicer to request a reduction. Money you do not accept is not disbursed to you and does not create a debt.

Can I repay my loans early without a penalty?

Yes. Federal student loans have no prepayment penalty. You can pay extra toward your loans at any time, and the extra payment goes directly toward the principal, reducing the total interest you pay over the life of the loan.

If I get a grant, does that reduce the amount of loans I can borrow?

No. Grants and loans are separate. Your school calculates your total cost of attendance, then subtracts all aid (grants and loans) to determine what you still need to cover. Receiving a grant does not lower your loan limit — it just means you need to borrow less to cover the remaining cost.

What is the difference between federal loans and private loans from FAFSA?

FAFSA only determines federal loans and grants. Private loans do not come through FAFSA. Federal loans have fixed interest rates set by Congress, flexible repayment options, and forgiveness programs. Private loans have terms set by the lender and typically offer fewer protections.