FAFSA loans must be repaid, but FAFSA grants do not
Whether you repay FAFSA money depends on what type of aid you received. Federal Student Loans — which come through the FAFSA process — must be repaid with interest. Federal Pell Grants and other grant programs do not require repayment. Your financial aid package likely contains both, so you need to know which is which before you graduate or leave school.
Your school's financial aid office sends you a document called an Award Letter that lists each type of aid separately. Loans appear with a loan amount and interest rate. Grants appear as assistance programs with no repayment terms. If you are unsure what you received, ask your school's financial aid office to break down your package by loan versus grant.
Key Takeaways
- Federal Student Loans from FAFSA must be repaid starting six months after you graduate or drop below half-time enrollment, and they accrue interest while you are in school.
- Federal Pell Grants and other grant programs do not require repayment under any circumstance.
- Your Award Letter from your school lists loans and grants separately, so you can see exactly what you owe.
- If you borrowed federal loans, you must complete entrance counseling and sign a Master Promissory Note before the money is disbursed.
- Repayment plans exist for federal loans, and income-driven plans can lower your monthly payment based on what you earn after graduation.
Federal Student Loans require repayment with interest
The most common federal loans through FAFSA are Direct Subsidized Loans and Direct Unsubsidized Loans. Both must be repaid. The difference is that the government pays the interest on subsidized loans while you are in school, but you pay interest on unsubsidized loans from the moment they are disbursed — even if you do not make payments yet.
Repayment typically begins six months after you graduate, leave school, or drop below half-time enrollment. This period is called the grace period. During the grace period, unsubsidized loans continue to accrue interest, which gets added to what you owe. Subsidized loans do not accrue interest during the grace period.
The amount you owe depends on how much you borrowed across all your years in school. Federal loans have fixed interest rates set by Congress, which change each year for new loans. Your school or loan servicer will tell you the exact rate on your loans and the total amount due when repayment begins.
Federal Pell Grants are assistance programs with no repayment
Federal Pell Grants are the most common grant for undergraduate students with financial need. You do not repay them under any circumstance. The money is yours to keep whether you graduate, transfer, or leave school. The same is true for other federal grants like the Federal Supplemental Educational Opportunity Grant (FSEOG) and Teacher Education Assistance for College and Higher Education (TEACH) Grants — though TEACH Grants have conditions tied to your career after graduation.
State grants and institutional grants (money from your school) also do not require repayment. Your Award Letter will list all grants separately from loans. If you are unsure whether something is a grant or a loan, the word "loan" will appear in the name, or your school will label it as a loan in the document.
How to tell loans from grants on your Award Letter
Your school sends an Award Letter each year showing your financial aid package. Loans and grants appear as separate line items. Loans will show an interest rate and a repayment start date. Grants will show only the dollar amount with no repayment terms listed.
The Award Letter also explains any conditions attached to the aid. For example, some grants require you to maintain a minimum grade point average or enroll full-time. Loans require you to complete entrance counseling and sign a promissory note before the money is sent to your school.
If your Award Letter is unclear, contact your school's financial aid office by phone or email. They can walk you through each line and explain what you owe and what you keep.
What happens if you do not repay federal loans
If you do not make payments on federal loans after the grace period ends, your loan goes into default. This has serious consequences: your wages can be garnished, your tax refunds seized, and your credit score damaged. The government can also take action without going to court first, which is different from most other debts.
If you are struggling to pay, do not ignore the debt. Federal loans offer income-driven repayment plans that can lower your monthly payment to as little as $0 per month if your income is low enough. You can also request a deferment or forbearance, which temporarily pauses payments. Contact your loan servicer as soon as you know you will have trouble paying.
Income-driven repayment plans lower monthly payments
Federal loans offer four income-driven repayment plans that calculate your payment based on your income and family size rather than the loan amount. These plans can make payments affordable if you earn a modest salary after graduation. Your payment could be $0 per month if your income is low enough.
The four plans are Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). Each has different rules about how payment is calculated and what happens if you do not earn enough to cover the interest. You can switch between plans at any time, and you must recertify your income each year to stay on an income-driven plan.
Income-driven plans extend your repayment timeline, which means you pay more interest over time. However, any remaining balance is forgiven after 20 to 25 years of payments, depending on the plan. You can explore which plan fits your situation using the Federal Student Aid Repayment Estimator on the StudentAid.gov website.
Frequently Asked Questions
Do I have to repay a Pell Grant if I do not finish my degree?
No. Federal Pell Grants do not require repayment regardless of whether you graduate, transfer, or leave school. The money is yours to keep. However, if you received a grant and then withdrew from school, your school may ask you to return a portion based on federal rules about aid disbursement timing.
What if I received both loans and grants?
You repay only the loans. Grants are assistance programs. Your Award Letter separates them, so you can see exactly which amount is a loan and which is a grant. Only the loan amounts appear on your credit report or affect your credit score.
Can I repay my federal loans early without a penalty?
Yes. Federal student loans have no prepayment penalty, so you can pay extra toward your balance or pay off the loan entirely at any time without owing a fee. Paying extra reduces the total interest you pay over the life of the loan.
What is the difference between subsidized and unsubsidized loans?
Subsidized loans do not accrue interest while you are in school or during the grace period after graduation. Unsubsidized loans accrue interest immediately, even while you are studying. Both must be repaid, but unsubsidized loans cost more because interest is added to your balance before you start making payments.
Do private student loans show up on the FAFSA?
No. Private student loans are separate from FAFSA and come from banks or other lenders, not the federal government. They must be repaid and typically have higher interest rates and fewer repayment options than federal loans. The FAFSA does not include private loans.