As long as the school you are transferring to is accredited–or to simplify things, as long as the school you are transferring to is set up to receive federal funds you WILL NOT GO INTO REPAYMENT. You won’t go into repayment until after you complete your degree or withdraw (and there is probably some fine print stuff I am not familiar with).

If you got a scholarship that paid you cash, you could use it as you pleased, but it would have to be huge money otherwise you’d have to take out debt to pay for the remainder of your education, and then what would be the point. If you are worried about debt (and you should be), and you are lucky enough to get a scholarship, use it to pay tuition and expenses and save anything left over (that debt isn’t going anywhere and you have a grace period before interest comes due assuming all your debt is currently in subsidized Staffords).

Any grants you get, institutional or otherwise, aren’t going to make for a surplus that would allow you to pay down your previous debt, I don’t care how low your EFC is. But if that should happen, write a book explaining what you did, and than save that surplus until you go into repayment or begin accruing interest (there’s no need to pay it back until it starts costing you money in interest).

To clarify the first point, the federal government doesn’t give grant money, ect to just any school calling itself an institution of higher learning, that’s not to suggest that higher education at accredited institutions isn’t a scam to some degree, but I digress. Anyhow, make sure your new school is set up to receive federal aid (that is, is recognized by the federal government as an institution worthy of aid funds and meeting its degree granting requirements).