If you find yourself asking why do you have to pay back financial aid, then you have come to the right place.
Financial aid has many forms.
While you do not have to repay grants and scholarships, you do have to repay federal and private student loans.
Here are the reasons you must keep in mind as you begin to repay student debt.
Why Do You Have to Pay Back Financial Aid?
1. It’s Required and a Responsibility
Upon securing your student loans, you enter a legally-binding agreement.
Whether or not you read the conditions of your financial aid agreements (you should), you are contractually obligated to repay your debts.
Of course, the government understands most cannot repay their debts in one large sum so they offer assistance.
Loan servicing programs have repayment plans for borrowers, designed to make sure you repay your financial aid in the most manageable way.
(Note: Different types of loans qualify for different types of repayment plans… And making sure that you’re in the correct repayment plan can mean better benefits, lower payments, and averaged out lower interest rates (which means an easier repayment for you!) Download this free cheat sheet to repayment plans to make sure you are taking advantage of the best one for you. Learn more here.)
2. To Avoid Entering Default
#studentloans can both help and hurt your #creditscore depending on how you manage them! #USSLC https://t.co/LLHFcKgVAf pic.twitter.com/oS8ZugRdlx
— USStudentLoanCenter (@USSLC1) October 20, 2017
Failure to repay your financial aid results in what is called student loan default.
Entering default severely damages your credit.
However, a borrower may simply enroll in a student loan rehabilitation program to get out of default.
Still, as the saying goes, prevention is better than cure.
Repay your student debt on time to avoid default.
3. Improve Credit Score
Your credit history reflects your debt repayment history.
Although you may improve your credit score in other ways, repaying your financial aid is one of the most effective ways to do so.
Plus, by doing so, you hit two birds with one stone.
A good credit score gives you financial credibility.
This will be essential for large investments such as owning a home, or even buying a new car.
4. Keep Interest from Accruing
#studentloan forgiveness might be your chance for debt relief! Here’s why: https://t.co/qiQMa5H14R pic.twitter.com/CP4WzGPDml
— USStudentLoanCenter (@USSLC1) November 1, 2017
Aside from entering default and hurting your credit score, not repaying financial aid can lead to an overwhelming amount of interest.
Student loans do not simply remain stagnant as you miss payments.
Interest accrues.
The amount you must repay grows disproportionately to the time and money you have to repay it.
5. Qualify for Forgiveness
A lot of borrowers resort to forgiveness in order to cope with repaying financial aid.
Although this is a type financial aid, student loan forgiveness comes with certain repayment conditions.
For instance, to qualify for the Public Service Loan Forgiveness Program, you must first make ten consecutive years of loan payments, and they must be paid on time.
6. Live a Debt-Free Life
Truth be told, the sole reason you need to pay back financial aid is the motivation to live a debt-free life.
Who does not want a future free of the debilitating weight of student debt?
Repaying your financial aid helps you get to the next phase of your life.
Without student loan debt in your life, planning for big dreams becomes possible.
7. Payment in Other Forms
Knowing your options is the first step to managing your #StudentLoans. Read more:https://t.co/0KQfzO9T2e pic.twitter.com/5Xw0j7TiIr
— USStudentLoanCenter (@USSLC1) October 16, 2017
Student loans are only one form of financial aid.
Grants and scholarships also exist.
Borrowers should take advantage of these because they are the forms of financial aid you need not repay.
Most scholarships and grants are awarded based on other criteria.
Some of these are degree program, state of residence, high school credentials, and extra-curricular activities.
Some scholarship and grant-giving bodies do require non-monetary repayment.
Most of the time this is in the form of service.
For instance, your financial aid provider might request you teach for a certain number of years in a certain area.
These financial aid bodies also require students maintain skills, studies, and grades to stay intact.
Watch this video from TODAY for more information on student financial aid:
Repaying financial aid definitely comes with stress.
Simple adjustments in budget and finances can affect other aspects of your personal and social life.
By keeping these important reasons in mind, you will find motivation to repay your financial aid in a manageable and consistent way.
These are necessary steps to ensure you live the rest of your life worry-free, stress-free and debt-free.
(Pro Tip: Need a bird’s eye view of all the options available for student loan repayment? Download the 8-Plan Cheat Sheet. to Student Loan Repayment for free. Click here to learn more and grab your free copy.)
What are your thoughts on financial aid? Let us know in the comments section below.
Up Next: Income Contingent Repayment Plan
Leave a Reply