What it means
Unlike a student loan, a grant is money given rather than lent. A Pell Grant is awarded by the federal government to students who show financial need, usually those from lower-income households.
It is typically for first undergraduate degrees, and the money is paid through the college, which applies it to tuition, fees and, where there is a balance, passes the rest to the student. To apply, a student completes the federal student aid application form each year.
The form collects information about family income, household size and other circumstances, and produces an index of what the family can be expected to contribute. A lower index means greater need and a higher grant, up to a maximum that is set by Congress each year.
The size of the award also depends on the cost of attending, and on enrolment status. A student who studies part time receives a smaller grant than one who studies full time.
Awards are normally limited to a set number of semesters of study. For colleges, Pell Grants are an important source of income and an indicator of the student mix.
Schools receiving the funds must follow federal rules on eligibility, satisfactory academic progress and return of funds if a student withdraws early. Finance offices reconcile the grant payments they receive against student accounts.
From an economic viewpoint, a grant lowers the net price a student pays and can make the difference between attending college or not. It also reduces the amount a student needs to borrow, which affects debt levels after graduation.
Policy makers debate the maximum award and eligibility rules regularly, so the details change from year to year. A nuance is that the grant is not guaranteed to cover the full cost of college.
At many institutions, tuition, housing and living costs exceed the maximum award, so students often combine a Pell Grant with work, scholarships and loans. Students should always check the current rules on the official government website.
In practice
Real-world examples.
Example
A first-generation student from a household with modest income enrols at a community college. Her Pell Grant covers most of her $4,500 tuition, so she works fewer hours and focuses on her coursework.
Example
A university financial aid officer reviews a student's file and finds that the family's contribution index is high, so the student qualifies for no Pell Grant but may be eligible for a loan or merit scholarship.
Example
A student receives a $3,000 Pell Grant for the autumn term but withdraws after four weeks. The college has to calculate how much of the grant must be returned to the federal government under the refund rules.
Formula
Calculation
Financial need = Cost of attendance - Expected family contribution index
Grant = Lower of (Financial need, Maximum award for the year), adjusted for enrolment status
Suppose a full-time student's cost of attendance is $22,000 and the family's contribution index is $4,000. Financial need = 22,000 - 4,000 = $18,000. For illustration, assume the maximum award for the year is $7,000. The grant is the lower of $18,000 and $7,000, so it is $7,000. The student still has 22,000 - 4,000 - 7,000 = $11,000 to cover from other sources, such as work, scholarships or loans. If the student studies half time, the grant might be about half, or $3,500.Case study
Seen in the real world.
Westbrook Community College is an illustrative, fictional institution with 5,000 students, of whom about 40% receive Pell Grants. The finance director noticed that many eligible students never completed the application form, and so missed out.
She worked with the aid office to run workshops and send reminders, and within a year the number of applicants rose by 600. If the average grant was $4,000, the extra aid brought $2,400,000 (600 x 4,000) of funding into students' pockets and the college.
Enrolment, retention and course completion rates also improved because students worked fewer hours. The illustrative lesson is that unclaimed aid is a missed opportunity for both students and the institution.
Watch out
Common mistakes.
- Assuming a Pell Grant must be repaid, when it is normally a grant rather than a loan, though it may have to be returned if the student withdraws early.
- Not applying each year, when the form must be completed annually to remain eligible.
- Thinking only students from very low-income households qualify, when need depends on several factors including family size and cost of attendance.
Questions
People also ask.
Who can get a Pell Grant?
Generally undergraduate students with financial need who are not yet holding a first bachelor's degree, subject to the rules in force at the time.
How much is a Pell Grant worth?
The maximum amount is set each year, and your actual award depends on need, cost and enrolment status.
Does a Pell Grant count as taxable income?
It is generally not taxable when used for tuition and required fees, but any part spent on other costs may be, so check the current tax guidance.
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