If you’re wondering “do you have to pay back FAFSA® loans?,” what you really want to know is whether you have to pay back your federal student loans that you may be eligible for after filling out your FAFSA. In short, you will have to pay back loans you get through completing the Free Application for Federal Student Aid (FAFSA®), but other types of student aid you get through FAFSA likely don’t need to be repaid.
Aside from federal student loans, you can also use FAFSA to apply for grants and scholarships as well as work-study jobs, for which you’d get funds you usually wouldn’t need to pay back. If you have loans through FAFSA and need to pay them back though, read on for information on the three general types of federal student loans and your repayment options.
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Direct Subsidized Loans
With Direct Subsidized Loans, the government (more specifically, the U.S. Department of Education) pays the interest while you are still in school at least half-time. That’s what makes them “subsidized.”
The maximum amount you can borrow depends on whether you are a dependent or an independent student, as well as what year of school you are in. However, it is ultimately up to your school how much you are eligible to receive each academic year.
Not everybody qualifies for a subsidized loan. You have to be an undergraduate (not a graduate student) demonstrating financial need and attending a school that participates in the Direct Loan Program. Additionally, the academic program in which you are enrolled must lead to a degree or certificate.
You also should check how your school defines the term “half-time,” as the meaning can vary from school to school. Contact your student aid office to make sure your definition and your school’s match completely. The status is usually based on the number of hours and/or credits in which you are enrolled.
Direct Unsubsidized Loans
You will have to pay back all the interest that accrues with Direct Unsubsidized Loans, because these loans are “unsubsidized.” That means the government doesn’t cover your interest while you’re in school like they do with a subsidized loan.
You do not have to prove a financial need in order to qualify for a Direct Unsubsidized Loan. Additionally, these loans are available to graduate students as well as undergraduate students. Again, you need to be enrolled at least half-time in a school that will award a degree or certificate.
Direct PLUS Loans
There are two types of Direct PLUS Loans:
• Grad PLUS Loans: These are for graduate or professional degree students
• Parent PLUS Loans: Parent PLUS Loans can be taken out by parents for as long as their qualifying child is a dependent or undergraduate student
Unlike most other loans, PLUS loans require a credit check, and you cannot have an adverse credit history . If you or your parents have bad credit, a cosigner on the loan application may be an option.
With Direct PLUS Loans, you can borrow as much as you need (subtracting the other financial aid you’re getting). However, the interest rate for PLUS loans is generally higher than it is for the other types of federal student loans.
Do I Get a Grace Period on My Federal Student Loan Repayment?
Whether you get a grace period — time after you graduate (or drop below half-time enrollment) during which you do not have to make loan payments — depends on what type of federal student loan you have, as not all federal student loans offer one. Direct Subsidized and Unsubsidized Loans offer a grace period of six months, whereas Direct PLUS loans don’t offer a grace period at all.
Grace periods are meant to give you time to find a job and organize your finances before you have to start making loan payments. They are usually one-time deals; in most cases, you often can’t get a second grace period once the initial one ends.
Additionally, not all grace periods are exactly alike. Different loans may offer different grace periods. Policies vary. Check with your loan servicer so that you know for sure when your grace period begins and ends.
Keep in mind that grace periods are usually not interest-free. Some loans accrue interest during grace periods, which means that the interest will “capitalize,” or be added to the principal when the grace period ends. Many students subscribe to the strategy of making interest payments even during the grace period. Doing this can ultimately lower the amount you owe, and interest payments are generally more affordable to handle than principal payments.
Also remember that loan servicers are paid by the Department of Education to handle billing and other services for federal loans. The government gives you a loan servicer; you don’t get to choose one yourself. The loan servicer you get is the one you should contact if you have questions regarding your loan.
Federal Student Loan Standard Repayment Plan
Once you graduate, your repayment plan will depend on various factors, but most of the time the government will place you on its Standard Repayment Plan . The general rule here is that you’re expected to pay off your loan over the course of a decade, and your payments will remain the same for the duration.
Before you are placed on that Standard Repayment Plan, the government gives you a chance to choose a few other repayment options (which we’ll discuss below). If you don’t choose one of those, you’ll automatically be placed on the Standard Repayment Plan.
Additional Repayment Options
Here are a couple of your other repayment options beyond the Standard Repayment Plan:
• The Extended Repayment Plan: The Extended Repayment Plan can extend your term from the standard 10 years to up to 25 years. To qualify, you must have at least $30,000 in outstanding Direct Loans. As a result, your monthly payments are reduced, but you could be paying way more interest.
• The Graduated Repayment Plan: Another option, the Graduated Repayment Plan lets you pay off your loan within 10 years, but instead of a fixed payment, your payments start low and increase over time. This may be a good option if your income is currently low but you expect it to increase over time.
Keep in mind that although you can choose these repayment options, you cannot refinance a federal student loan with the government on your own (you can, however, consolidate them). That’s because those interest rates are set by federal law , and they can’t be changed or renegotiated.
Difference Between Refinancing & Consolidating Student Loans
While you can’t refinance your federal loans with the government, you can do so with a private loan company. Before you consider refinancing, be sure to know the difference between refinancing and consolidating student loans:
• Refinancing means taking out a brand new loan so that you can pay off your existing loans. To refinance, you’ll choose the loan company you feel is best, with (hopefully) better interest rates and repayment terms. Refinancing can be done via a private lender and can be used for both federal and private loans. Keep in mind that when you refinance federal loans with a private lender, you lose access to federal benefits and protections like loan forgiveness programs and repayment plans.
• Consolidation means placing all of your current loans into one big loan. Doing this typically extends your loan term so that your monthly payment is lowered. The problem with consolidating student loans is that it could mean you wind up paying additional interest. This is because when you consolidate multiple federal student loans, you’re given a new, fixed interest rate that’s the weighted average of the rates from the loans being consolidated.
Refinancing (as opposed to consolidating) your school loans may be a good option if you have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. Refinancing your existing loans with a longer term can reduce your monthly payments. Alternatively, you may be able to lower your interest rate or shorten your term.
Before you apply for that refinancing plan, it’s a good idea to check your credit score, as it is an important factor that lenders consider. Many lenders require a score of 650 or higher. If yours falls below that, you may consider a cosigner on the loan.
Lenders typically offer fixed and variable interest rates, as well as a variety of repayment terms (which is often based on your credit score and many other personal financial factors). The loan you choose should ultimately help you save money over the life of the loan or make your monthly payments more manageable.
If you only got grants, scholarships, or work-study funding through FAFSA, you don’t have to worry about paying FAFSA back, so to speak. But if you got federal student loans through filling out FAFSA, you will have to pay those loans back.
Luckily, you have a number of options to do so. If you have high-interest loans, consider looking into student loan refinancing to see if you can reduce your monthly payments.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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