In March and early April, high school seniors begin receiving financial aid offers from the colleges where they’ve applied. These offers outline the types and amounts of financial assistance being given to help cover the cost of attendance. As families review these packages, one common question arises:
“Is this all free money?”
The answer depends on the type of aid offered. A lot of financial aid is free money, but some is not. We outline it all below.
Grants and Scholarships: Free Money
Grants and scholarships are considered “free money” because they do not need to be repaid. If the award includes the word grant or scholarship, it typically falls into this category.
These funds are usually credited directly to the student’s account at the beginning of each semester and applied toward tuition, fees, housing, meal plans, and other billed expenses.
However, there are often requirements to continue receiving this aid each year. Students may need to:
- Maintain a certain GPA
- Enroll in a minimum number of credit hours
- Meet specific conditions, such as completing community service or staying in a certain major
If a grant or scholarship is based on financial need, students must also reapply for financial aid each year and continue to demonstrate eligibility.
Federal Work-Study: Earned, But Still Not Repaid
Federal work-study is also considered financial aid that does not need to be repaid, but students must earn it.
If work-study is included in a financial aid offer, it means funds have been set aside for the student to earn through a designated on-campus or approved off-campus job. Students work with the college at the beginning of the year to secure a work-study position.
Unlike grants and scholarships, work-study funds are not credited upfront to the student’s bill. Instead, students receive paychecks throughout the year as they work. The funds a student earns can then be applied to indirect costs like books and supplies, or allocated to the school to cover direct costs like tuition and fees.
So while work-study does not have to be repaid, it does require the student’s time and effort.
Federal Direct Student Loans: Not Free Money
Most students who complete the FAFSA are eligible for Federal Direct Student Loans. These loans are credited to the student’s account at the beginning of each semester, just like grants and scholarships, but they must be repaid.
Repayment does not begin until the student graduates, leaves school, or drops below half-time enrollment. But the loans must be repaid in full, plus any interest accrued. Subsidized Federal Direct Student Loans won’t start accruing interest until the student leaves school. But Unsubsidized Federal Direct Students Loans will start accruing interest as soon as they’re given to the student. That accrued interest is added to the principal balance when repayment begins.
PLUS Loans: Not Free Money
Sometimes financial aid offers include a Parent PLUS Loan. This is also an item on the financial aid offer that must be repaid. It’s important to understand that any PLUS Loan that appears on a financial aid offer is merely a suggestion from the financial aid office. Parents don’t have to take a Parent PLUS Loan and can consider a myriad of other private loan options. A parent must still apply and be approved for a PLUS Loan to receive it.
Also, an important note about Parent PLUS Loans: starting on July 1, 2026, these loans will be limited to $20,000 per year and $65,000 in total (per student) for new borrowers. So even if a financial aid offer for a new borrower includes a Parent PLUS Loan of a larger amount, the parent won’t be eligible for it.
All Parent PLUS Loans will need to be repaid in full, plus all interest accrued, within the loan repayment term.
The Bottom Line
Some types of financial aid, such as grants, scholarships, and work-study, do not need to be repaid. Certain loans may appear on the financial aid offer, however, they always require repayment with interest. Understanding this distinction is crucial as you compare financial aid offers and make your college decision. To learn how to evaluate your options and plan responsibly for college costs, be sure to watch MEFA’s webinar, Financial Aid Offers & the College Bill.
