FAFSA money breaks into two types: grants you keep, and loans you repay

Not all FAFSA money is a loan. When you complete the FAFSA form, the U.S. Department of Education uses your answers to determine what federal aid you may receive. That aid comes as grants (information programs), work-study (a job), or loans (money you owe back). Grants and work-study do not require repayment. Federal student loans do, and repayment begins after you leave school or drop below half-time enrollment.

Your financial aid package from your school will list each type separately. The document usually shows the grant amount on one line, work-study on another, and loan amounts on a third. The school's financial aid office can tell you which pieces are grants and which are loans if the package is unclear.

Key Takeaways

  • Federal Pell Grants and Federal Supplemental Educational Opportunity Grants (FSEOG) are information programs that never requires repayment, regardless of income after graduation.
  • Federal student loans — Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans — must be repaid with interest, and repayment typically starts six months after you leave school.
  • Work-study earnings are wages you receive for working a campus job and do not require repayment.
  • Your school's financial aid package will separate grants, work-study, and loans into different line items so you can see which money is free and which you owe.

Grants: the FAFSA money you never repay

The main grant available through FAFSA is the Federal Pell Grant. This is information programs for undergraduate students with financial need. The amount changes each year and depends on your Expected Family Contribution (EFC), your school's cost of attendance, and your enrollment status (full-time or part-time). Pell Grants do not require repayment under any circumstance.

The Federal Supplemental Educational Opportunity Grant (FSEOG) is a second grant program for undergraduates with exceptional financial need. Schools distribute FSEOG funds to students who also receive a Pell Grant. Like the Pell Grant, FSEOG money is free and does not require repayment.

Some schools also offer institutional grants — money from the school itself, not the federal government — to students who complete the FAFSA. These are also information programs. Your financial aid package will show institutional grants separately from federal grants.

Federal student loans: what you repay and when

FAFSA can make you may be able to access for three types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. All three require repayment with interest.

With a Direct Subsidized Loan, the federal government pays the interest while you are in school at least half-time. Once you leave school or drop below half-time status, you enter a six-month grace period. After the grace period ends, you begin making monthly payments, and interest starts accruing on your balance.

With a Direct Unsubsidized Loan, interest accrues from the moment the loan is disbursed, even while you are in school. You can choose to pay the interest while in school or let it accumulate and be added to your loan balance (called capitalization) after you leave school. Either way, you owe the full amount back.

Direct PLUS Loans are for parents of dependent undergraduates or for graduate students. These loans have a higher interest rate than Subsidized or Unsubsidized loans and begin accruing interest when ready. Repayment typically starts within 60 days of disbursement, though you may be able to defer payments while your student is in school.

Work-study: earnings that are not a loan

If your financial aid package includes work-study, this is a job on or near campus. You earn an hourly wage for the hours you work. The money you earn is yours to keep — it is not a loan and does not require repayment. Work-study wages are taxable income, and your employer will send you a W-2 form at the end of the tax year.

The amount listed in your aid package is the maximum you can earn through work-study in that academic year, not a may provide amount. You control how many hours you work, up to that limit.

How to tell what you owe and what you don't

Your school sends a financial aid package or award letter each year. This document lists every type of aid you have been offered. Look for these labels:

  • Grant or Scholarship — information programs, no repayment required.
  • Work-Study — wages you earn, no repayment required.
  • Loan or Direct Loan — money you must repay with interest.

If the package does not clearly separate these categories, contact your school's financial aid office. They can explain which pieces are free and which are loans. You can also log into your Federal Student Aid account at studentaid.gov to see a record of all loans you have taken out and their current status.

What happens if you don't repay a federal student loan

If you borrow federal student loans and do not repay them, the consequences accumulate over time. Interest continues to accrue, and late fees may be added. After 270 days of non-payment, your loan enters default. Once in default, the entire remaining balance becomes due when ready, your wages may be garnished, your tax refunds may be seized, and your credit score will be damaged.

If you are struggling to repay, you have options before default occurs. Income-driven repayment plans can lower your monthly payment based on your current income. Deferment or forbearance can temporarily pause or reduce payments if you face financial hardship or return to school. Contact your loan servicer — the company that manages your loans — to discuss these options.

Frequently Asked Questions

Do I have to repay a Pell Grant if I don't finish my degree?

No. Pell Grants are information programs and do not require repayment regardless of whether you complete your degree, leave school early, or change schools. However, if you received a Pell Grant for a term and then withdraw from that term, your school may require you to return a portion of the grant money.

What if I took out loans but now can't afford to repay them?

Contact your loan servicer when ready. Income-driven repayment plans can lower your monthly payment to as little as $0 per month based on your income. Deferment or forbearance can temporarily pause payments. Defaulting on your loans damages your credit and can lead to wage garnishment and tax refund seizure, so exploring repayment options early is important.

Can I find out how much federal student loan debt I have?

Yes. Log into your account at studentaid.gov using your FSA ID. You will see a record of all federal loans you have taken out, the current balance on each, and the name of your loan servicer. Your loan servicer can also provide a detailed statement of what you owe and your repayment options.

If my school gives me a scholarship, do I have to repay it?

No. Scholarships — whether from your school, a private organization, or an employer — are information programs and do not require repayment. They are different from loans. Your financial aid package will label scholarships separately from loans.

What is the difference between subsidized and unsubsidized loans in terms of repayment?

Both require full repayment with interest. The difference is when interest starts accruing. With subsidized loans, the government pays interest while you are in school, so you owe less when repayment begins. With unsubsidized loans, interest accrues when ready, so your total debt is higher by the time you start repaying.