FAFSA gives you both loans and grants — you repay loans, but not grants

The money you receive through FAFSA comes in two forms. Grants are assistance programs you do not repay. Loans are money you borrow and must pay back, usually after you leave school. Your financial aid package will list both separately, so you can see exactly which dollars are yours to keep and which you owe.

The federal government does not automatically decide which type you get. Your school's financial aid office builds your package based on your FAFSA information, your school's policies, and how much aid money the school has available. Some students receive only grants. Others receive only loans. Most receive a mix of both.

Key Takeaways

  • Federal Pell Grants and Federal Supplemental Educational Opportunity Grants (FSEOG) are assistance programs you never repay, regardless of your income after graduation.
  • Federal student loans — including Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans — must be repaid with interest, usually starting six months after you leave school.
  • Your financial aid award letter will show grants and loans separately, so you know which portion requires repayment.
  • Turning down loans in your package does not affect your grants; you can accept assistance programs and decline borrowed money.

Federal grants: money you keep

The most common federal grant is the Federal Pell Grant. The amount changes each year based on Congress's funding, but for the 2024–2025 school year, the maximum was $7,395. You do not repay this money under any circumstances. If you graduate, drop out, or never use the degree, the grant remains yours.

The Federal Supplemental Educational Opportunity Grant (FSEOG) is a second federal grant program, smaller and less common than Pell. Schools distribute FSEOG money to students with the greatest financial need. Like Pell, it is assistance programs with no repayment obligation.

Some states and individual colleges offer their own grants as well. These also do not require repayment. Your award letter will identify which grants you received and from which source.

Federal loans: money you must repay

Direct Subsidized Loans are federal loans for undergraduate students with demonstrated financial need. The government pays the interest while you are in school at least half-time. Once you leave school, you enter a six-month grace period before payments begin. After that, you repay the loan with interest.

Direct Unsubsidized Loans are available to undergraduates and graduate students regardless of financial need. Interest accrues (builds up) from the moment the loan is disbursed, even while you are still in school. You can choose to pay the interest as it accrues or let it capitalize (get added to your loan balance), which means you will owe interest on interest. Like subsidized loans, you have a six-month grace period after leaving school before repayment begins.

Direct PLUS Loans are federal loans for parents of dependent undergraduates or for graduate students. These loans are unsubsidized, meaning interest accrues immediately. They typically carry a higher interest rate than Direct Subsidized or Unsubsidized loans. Parents and graduate students must begin repayment while still in school, though some repayment plans allow deferment.

How to tell what you owe and what you keep

Your school sends you a financial aid award letter after you submit your FAFSA. This letter lists every source of aid — grants, loans, work-study, scholarships — and the amount for each. The letter will clearly separate grants (which you keep) from loans (which you repay).

You can also log into your FAFSA account at studentaid.gov and view your aid summary. This shows what each school has offered you. If you have questions about whether a specific line item is a grant or loan, contact your school's financial aid office directly — they can explain each piece of your package.

Keep in mind that you do not have to accept every loan offered to you. If your award letter includes a $5,000 unsubsidized loan but you only want to borrow $3,000, you can decline part of it. Accepting or declining loans does not change your grants.

Private loans and other borrowed money

FAFSA itself does not distribute private loans, but many students borrow from private lenders (banks, credit unions, online lenders) to cover remaining education costs. These loans are separate from FAFSA and have their own terms, interest rates, and repayment schedules. You are responsible for understanding the repayment terms before you sign.

Some employers, unions, and nonprofits offer education loans or tuition assistance programs. These also fall outside FAFSA and have their own repayment rules. Always read the terms carefully to know when repayment begins and what interest rate applies.

What happens if you do not repay federal loans

Federal student loans have serious consequences for non-repayment. Your loan can go into default if you do not make a payment for 270 days (about nine months). Once in default, the entire remaining balance becomes due immediately, your credit score drops significantly, and the government can garnish your wages or tax refunds to recover the debt.

If you are struggling to repay, contact your loan servicer before you miss a payment. Federal loans offer income-driven repayment plans that can lower your monthly payment based on your current income, and temporary forbearance or deferment options that pause or reduce payments during hardship. These options exist specifically to help borrowers avoid default.

Frequently Asked Questions

Do I have to repay a Pell Grant if I do not finish my degree?

No. Pell Grants are assistance programs regardless of whether you complete your degree, change schools, or leave college. The only exception is if you received a Pell Grant for a term and then withdrew from all classes during that term — your school may ask you to return a portion of that specific disbursement.

What is the difference between subsidized and unsubsidized loans?

With subsidized loans, the government pays your interest while you are in school. With unsubsidized loans, interest accrues from day one, and you owe it whether you are in school or not. Unsubsidized loans cost more over time because of this additional interest.

Can I pay back my loans early without a penalty?

Yes. Federal student loans have no prepayment penalty. You can pay extra toward your balance at any time, and the extra payment goes directly to reducing what you owe. Paying early saves you money on interest.

What if I received a grant but my family's income changed?

Your grant for the current school year does not change based on income changes during that year. However, when you file your FAFSA for the next school year, your updated income will be considered, and your grant amount may increase or decrease accordingly.

Do I need to repay work-study earnings?

No. Work-study is a job, not a loan. You earn wages for hours worked, and those wages are yours to keep. You do not repay work-study money.