Do You Have to Pay Financial Aid Back?
Financial aid helps around two-thirds of all undergraduate full-time college students to obtain their degrees from higher-learning institutions, per The College Board. For the vast majority, college wouldn’t be possible without it. Grants and scholarships are monies given to the student free of charge. No payback is necessary on these types of financial aid.
The U.S. Department of Education accounts for 61.1 percent of 2011-2012 Pell Grant applicants being eligible, with the average award amount being $3,555. When it comes to work-study programs, repayment isn’t necessary either. In exchange for work hours on the student’s behalf, the employer makes payments on the student’s tuition.
Student loans are the only source of financial aid that must be repaid. There are four types of loans, and each has its own set of criteria that make you eligible or ineligible to use them. Aside from the PLUS Loan — which is a standard loan for graduate and professional students, as well as parents of dependents pursuing an undergraduate education — the rest of the loans have no credit history requirements. If you have utilized any Direct Loans, you will be required to begin paying on their balance six months after you’ve graduated or dropped to less than part-time enrollment in school, per StudentLoans.gov. The same rules apply for Federal Perkins Loans, but students are given a nine-month payment-free period post-graduation.
Interest rates imposed on student loans are set by Congress, and they can change from one academic year to the next. For loans initially distributed after the start of the 2013-2014 academic year, but before the following one begins, interest was as low as 3.86 percent for Direct Loans for undergraduates, 5.41 percent for Direct Unsubsidized Loans for graduate and professional students, and as high as 6.41 percent for Direct PLUS Loans, per the office of Federal Student Aid. For the 2016-2017 school year, they’ve decreased across the board to 3.76 percent, 5.31 percent, and 6.31 percent, per the FSA office.
Loans distributed after October 1, 2015 impose a 1.068 to 4.272 percent loan fee, depending on your college year and loan type. Direct Subsidized Stafford Loans are favorable because the government pays the interest accruing on them while you’re enrolled in school.
Unfortunately, the economy still isn’t at its best. In addition, the increasing ability for more people to get a student loan means more people are attending college than ever before. While this is a great educational advancement, it also means the job market is rather flooded. US News reports that 284,000 college graduates — with approximately 30,000 holding master’s degrees — were earning a minimum wage income or less as of 2012.
Thus, many graduates are still unemployed or underemployed six months after graduation. They — along with others who may have encountered another type of hardship — can apply for a forbearance or deferment of their loan payments. This is also an option for students who intend to continue to graduate-level studies. Those who express an inability to pay the amounts that are due on federal loans can apply for acceptance to the following specific repayment plans:
- Income-Based Repayment
- Standard Repayment
- Graduated Repayment
- Income-Sensitive Repayment
- Extended Repayment
- Income-Contingent Repayment
Some situations warrant the discharging of Direct, Federal Family Education, and Perkins Loans, such as:
- Closed school discharge
- Total and permanent disability discharge
- Death discharge
- Bankruptcy discharge (not common)
Others apply only to Direct Loans and FFELs, like:
- Unauthorized Payment Charge
- False Certification of Student Eligibility
- Unpaid Refund Discharge
- Teacher Loan Forgiveness
Direct Loans can sometimes be discharged via Public Service Loan Forgiveness Programs, too. Other extenuating circumstances may permit the cancellation of Perkins Loans on an individual basis.