Can I Receive Financial Aid If I Owe Another School Money?

Student loans are quite burdensome on those who take them especially those who enroll in programs with a low graduation rate, programs from which it might be difficult to find a job or programs where incurred debts are largely unpayable. This has left several Americans deep in student debt. Borrowers who struggle with debt are disproportionately from families with low income. This fear of student debt has also made many Americans miss out on a college education and the opportunities it offers. Here we will see about Can I Receive Financial Aid If I Owe Another School Money?

Qualification for financial aid is usually dependent on the status of previous financial aid that you have benefitted from. If you owe your former college some money, that is generally not enough to prevent you from receive seeking admission into another school or applying for financial aid in that school. However, if the loans being owed are due to your attendance at your former school, it could prevent you from receiving financial aid at the new school. In cases such as these, actions need to be taken in order to put the defaulted loans in good conditions.

Can I Receive Financial Aid If I Owe Another School Money?

Ways By Which You Can Owe Money

  There are generally two ways by which a student might owe money at their previous college: owing the college directly or owing the government.

Owing your college money:

Upon application for financial aid at your old school, your FAFSA form must have been used to determine which financial aid was going to be awarded to you. This was in turn used to par for your fees and ultimately your tuition. If the money is not enough to pay for your tuition, a bill would be sent to you from the school. This bill serves a contract between the school and the student. If you have no means to pay off the difference, the college will take actions such as holding back your transcripts and this can make it quite difficult to transfer to another college. However, this practice has been outlawed by some states. Nonetheless, remember that owing money to a college has no significant effect on your ability to seek financial aid at a new school.

Owing the Federal Government money:

The rules guiding applying for financial aid while owing the federal government are quite different. For instance, if you are required to pay back your Pell grant and you drop out of school, you would be ineligible for financial aid until t grant has been repaid. Also, if you owe student loans and have defaulted on them, you won’t be able to apply for any loans funded by the federal government. You might however be able to receive private loans

Consequences of Defaulting on Student Loans

Loss of access to other federal programs and repayment tools:

When you default on a loan, interest continues to accrue on these loans. Also, borrowers who have enrolled in repayment plans that were income-driven, which might offer incentives such as forgiveness of loans after 20 to 25 years of payments, might lose their access to these features while their loans are in default.

Collection fees might increase borrowers’ cost:

borrowers who default may be charged as much as 25% principal and interest while interest continues to add up. 

Jeopardizing employment:

Depending on your state of residence and the type of loan, borrowers who default on loans may risk suspension of licenses which might hamper their ability to gain employment or continue in their jobs. 

Ways To Get Out of Default

There are mainly two ways to get out of default: loan consolidation and loan rehabilitation. While rehabilitation takes a long time to complete, the process of loan consolidation does not take time. However, there are several benefits associated with loan rehabilitation that do not come with loan consolidation.

Loan consolidation:

This can be achieved via two ways: borrowers may make three on-time, consecutive, full payments, monthly on the defaulted loan or borrowers can roll their current federal student loan into new loans which they can then repay. The required amount for consolidation is usually dictated by the loan holder but is usually a reasonable amount based on the present financial circumstance of the borrower. Consolidation can only be done once and the default is usually not removed from the credit history of the borrower.

Loan rehabilitation:

This is a method of loan-fixing which involves making nine on-time payments within 10 consecutive months. When a loan is rehabilitated, the default status on the loan is taken off. You’ll also become eligible for benefits that were available with the loan before the default. However, late payments that were reported by your loan holder before you defaulted, will still reflect on your credit history.


Different reasons exist for why students are unable to repay their loans. Defaulting on your student loans can be a harrowing experience. Defaulting on loans is however, not a unique experience. About 9.7% of student loan borrowers have been shown to default upon entering repayment. The government has put some measures in place to avoid students from going into default on their loans. For example, the government halted collection activities and stopped federal student loans from going into default. This lasts till Nov 1, 2022. You can use this period to put your loans back in good standing while you look for ways to repay them.

Frequently Asked Questions

  1. What is the average student loan debt for a bachelor’s degree? Since tuition is partly subsidized by state funding, less loan debt is accrued from public 4-year colleges than private colleges. The average debt that might be accrued for a bachelor’s degree is estimated to be $27,000. This value is quite lower than the $33,700 that has been estimated as the debt one might have to face on attending a private school.
  2. Why do I get a notice informing me of my fees being due, when my financial aid should take care of it? The deadline for payment of fees usually comes earlier than the first disbursement of the financial aid. If the pending financial aid can cover your tuition fees, a payment is not required on the fee deadline.
  3. What does a “verification hold” on my loan mean? This means your record is under verification. Some additional information will need to be provided to your Office of Student Aid before your loan can be credited to you.
  4. How long does it take for my mailed payment to reflect? It might take about 7 – 10 business days for payments to be received. This is usually due to the high number of payments received at the beginning of the semester. Processing time can also take longer but you are advised to monitor your student account.