When it comes to covering college costs, families have several financial aid options to consider. However, it’s important to remember that the kind of aid received affects whether it needs to be repaid. Loans must be paid back, but grants, scholarships, and work-study earnings don’t require repayment.
Experts recommend that students max out grants and scholarships before turning to loans. Still, for many families, these options aren’t enough. According to U.S. News data, about 66% of 2017 graduates took out loans, borrowing nearly $30,000 on average.
With national student loan debt hitting around $1.5 trillion, Marty Somero, financial aid director at the University of Northern Colorado, notes that students often have to research loans and repayment plans themselves—which can sometimes lead to taking on more debt than intended.
“Students get overwhelmed by all the choices,” Somero says, explaining that some end up with so many loans they lose track of who they owe and how much. “Figuring out the best repayment plan takes a lot of research and reading online.”
To help manage the process, Somero suggests reaching out to a school’s financial aid office for guidance. The U.S. Department of Education’s website also offers details on federal aid options.
Financial Aid That Doesn’t Need Repayment
Grants and scholarships, often called “gift aid,” don’t require repayment.
- Grants are usually given by the federal government, states, or colleges based on financial need. For example, the Pell Grant and Federal Supplemental Educational Opportunity Grant (FSEOG) help undergraduates with significant need. Most grants require filing the FAFSA.
- Scholarships are awarded for merit, athletics, or other achievements.
- Work-study earnings also don’t need repayment, but students must work (often on campus) to earn their pay.
To qualify for work-study, students must submit the FAFSA and mark their interest. Since funding depends on need and school budgets, filing early boosts chances of securing a spot.
A student’s financial aid package—including loans—is outlined in their award letter. However, some schools don’t clearly separate repayable aid from free aid, which can cause confusion.
“When reviewing your award letter, double-check whether it’s a loan (which must be repaid), a grant or scholarship (free money), or work-study (earned through work),” Somero advises.
Financial Aid That Must Be Repaid
Student loans come in different forms, including federal and private options, each with varying repayment terms.
To apply for federal loans, students must submit the FAFSA. Based on the results, schools send financial aid offers, which may include federal loans. Experts generally favor federal loans because they have fixed rates, rarely require co-signers, and don’t need repayment until after leaving school.
However, Kim Cole, a financial educator at Navicore Solutions, notes that more students now need additional funding beyond federal loans.
“Federal loans should always come first,” she says. “But with rising costs, they often don’t cover everything—tuition, housing, and other expenses. If you need extra funds, compare private loans from banks, ideally with low fixed rates.”
Private loans may have fixed or variable rates, depending on credit history. Repayment terms vary, so Cole urges students to read the fine print and consult financial aid officers.
“Private lenders aren’t required to offer flexible repayment options,” she warns. “Young students might not grasp compound interest or loan terms, so if anything’s unclear, ask for help—don’t rely on the lender’s explanation.”
Loan Forgiveness Options
In rare cases, borrowers may not have to repay their full loan amount.
- Public Service Loan Forgiveness (PSLF): For those working full-time in government or nonprofits, remaining debt is forgiven after 120 qualifying payments.
- Teacher Loan Forgiveness: Teachers in low-income schools for five straight years may qualify for up to $17,500 in forgiveness.
- Discharge for Disability or Death: Federal loans may be canceled in cases of total permanent disability or death.
- Income-Driven Forgiveness: After 20–25 years of payments, remaining federal loans may be forgiven.
“Forgiveness programs exist, especially for teachers in high-need schools, but they’re not common,” says Paul McKinney, financial aid director at Mississippi State University.
When Repayment Begins
The timeline depends on the loan type:
- Some federal loans give a six-month grace period after leaving school before repayment starts.
- Subsidized loans (for undergrads with financial need) don’t accrue interest until after college.
- Unsubsidized loans start accruing interest immediately. If unpaid, it’s added to the loan balance.
Experts recommend prioritizing subsidized loans. Private loans typically aren’t subsidized.
The federal government offers eight repayment plans, ranging from 10 to 25 years. If no plan is chosen, borrowers default into the 10-year standard plan. Cole advises students to discuss options with their loan servicer early.
McKinney stresses that students should plan repayment before borrowing: “Many wait until graduation to ask, ‘How much do I owe?’ But understanding this upfront is crucial.”