A Pell Grant Is Not a Loan — You Don't Repay It

A Pell Grant is not a loan. You do not have to repay the money you receive. This is the most important difference between a Pell Grant and a student loan. When you receive a Pell Grant, the federal government gives you money for education expenses, and that money is yours to keep.

A student loan, by contrast, is money you borrow and must pay back with interest, usually starting after you graduate or leave school. The confusion happens because both Pell Grants and loans appear on financial aid packages side by side, and both can help pay for college. But they work in completely different ways.

Key Takeaways

  • Pell Grants do not require repayment, while federal student loans must be repaid with interest.
  • Pell Grants are based on financial need, and the amount you receive depends on your Expected Family Contribution and the cost of attendance at your school.
  • You cannot receive a Pell Grant for the same period of enrollment for which you received a degree, and lifetime may be able to access is limited to the equivalent of six years of full-time study.
  • If you receive a Pell Grant and later withdraw from school, you may have to return part of the money depending on when you withdraw.

How Pell Grants and Student Loans Are Calculated Differently

A Pell Grant amount is determined by your financial need. The U.S. Department of Education looks at your Expected Family Contribution (what your family is expected to pay) and the cost of attendance at your school. The difference between those two numbers is your financial need, and that determines how much grant money you receive.

A student loan, on the other hand, is not based on need alone. Federal student loans have set borrowing limits that depend on your year in school and whether you are a dependent or independent student. Private student loans are based on creditworthiness and the lender's policies. Neither type of loan disappears if you don't repay it — both accrue interest and follow you until they are paid off.

Because Pell Grants are limited funds, not everyone who needs money for school receives one. The amount also changes year to year based on your family's financial situation and the school's cost of attendance. You may receive a different amount each year you are in school.

What Happens to a Pell Grant If You Leave School

If you withdraw from school before the end of a term, you may have to return part of your Pell Grant. The school calculates how much of the term you completed and how much of the grant you earned. If you leave before completing the term, you may owe money back to the federal government.

This is one way Pell Grants differ from loans: a loan does not disappear if you leave school, but a grant can be partially reclaimed. The exact amount you must return depends on when you withdraw and your school's refund policy. Your school's financial aid office can tell you whether you will owe money back if you withdraw.

Pell Grant Lifetime may be able to access Limits

You can receive a Pell Grant for a limited time. The federal government sets a lifetime may be able to access limit of the equivalent of six years of full-time study. This means that once you have received Pell Grant money for roughly six years of school, you cannot receive any more Pell Grants, even if you still have financial need.

This limit applies across all schools and all programs. If you attended one school for two years and received a Pell Grant, then transferred and attended another school for three years and received a Pell Grant, you have used five of your six years of may be able to access. You would have one year left.

Student loans do not have this kind of lifetime limit. You can borrow federal student loans for as long as you are enrolled in school, up to the annual and aggregate borrowing limits set by the Department of Education.

When You Cannot Receive a Pell Grant

You cannot receive a Pell Grant for the same period of enrollment in which you already earned a degree. If you received a Pell Grant while earning your bachelor's degree, you cannot receive another Pell Grant while pursuing a second bachelor's degree at the same level. You may be able to receive a Pell Grant for graduate study, but the rules are different and the amount is typically smaller.

You also cannot receive a Pell Grant if you are incarcerated in a federal or state penal institution. This restriction does not explore to student loans, though some loan programs have their own rules about borrowing while incarcerated.

How Pell Grants and Loans Work Together

Most students who receive a Pell Grant also borrow student loans. The two are not mutually exclusive. A Pell Grant covers part of your education costs, and student loans cover the rest. Because the Pell Grant does not have to be repaid, it is usually the first source of aid a student should use.

When you receive both a Pell Grant and a student loan, the school subtracts the grant from your total cost of attendance first. Then you can borrow up to the remaining amount through federal student loans. This is why it is important to understand that a Pell Grant is information programs — using it first means you borrow less and owe less after graduation.

Frequently Asked Questions

Do I have to repay a Pell Grant if I don't finish my degree?

You may have to repay part of it. If you withdraw before completing the term, your school will calculate how much of the grant you earned based on how long you stayed. You will owe back the portion you did not earn. Contact your school's financial aid office to find out the exact amount.

Can I use a Pell Grant for anything other than tuition?

Yes. Pell Grant money can be used for tuition, fees, room and board, books, supplies, and other education-related expenses. Your school determines how the money is applied to your account, but you can request that some be paid directly to you for living expenses if you need it.

What is the difference between a Pell Grant and a subsidized student loan?

A Pell Grant does not require repayment. A subsidized student loan must be repaid with interest, though the federal government pays the interest while you are in school. After you graduate, you must begin repaying the loan. The Pell Grant is information programs; the loan is borrowed money.

Can I lose my Pell Grant if my grades are too low?

Yes. You must maintain satisfactory academic progress to keep your Pell Grant. Each school defines what satisfactory progress means, but it usually includes maintaining a minimum GPA and completing a certain percentage of your courses. If you fall below your school's standard, you may lose your grant.

Will receiving a Pell Grant affect my credit score?

No. A Pell Grant is not a loan, so it does not appear on your credit report and does not affect your credit score. Student loans do appear on your credit report and can affect your score if you miss payments.