Pell Grant Program vs. Student Loan

Students face steep costs for a college education today. The average costs for one year at a four-year U.S. College are approximately $22,000.

The idea of paying for college expenses out of pocket is not possible for most students and their families. Financing options are vital to successful admission and matriculation. Students are wary even as teenagers, of taking on a mountain of personal debt in order to get a degree. Many understand that while a degree is a step towards a solid career, there are no guarantees.

Will You Have to Repay?

Grants are preferable to loans because grants do not require repayment. Grants resemble a gift. Many grants are competitive, and awards follow an assessment of students' achievement and potential for excellence. Grants cover many purposes, and most are from private funding sources. Loans may be a more reachable source of funds for college than competitive grants. However, loans require repayment. Repayment terms are favorable to the borrowers in that the interest rates are lower than those usually available for unsecured loans are. Set by law and federal rules, low-interest Federal Student Loans are a primary source of funds for college in the United States. Unfortunately, even at lower interest rates than commercial loans, students can build a large amount of debt, particularly if additional years of graduate school study follow four years of college.

Are They for Specific Uses?

One way to reduce student debt is to compete for grants. The Pell Grant program, named after Senator Claiborne Pell from Rhode Island, is a favorite source of student funds. It is the Basic Education Opportunity Program, and its purpose is to assist low-income families with college tuition costs. Administered through the U.S. Department of Education, It provides annual grants of up to $5,500 per student per year for qualified students. Aimed at students seeking an initial undergraduate degree, the Pell Grant program also provides funds for graduate education for teachers. The government bases qualification for the Pell Grant program upon a determination of family income and resources available for payment of educational costs. Students may also qualify when seeking advanced teaching degrees and other specified categories.

Are There Application Requirements?

Pell Grants differ from student loans and other forms of aid. Under the applicable statutes, the government bases the award of Pell Grants on need. Most grants and scholarships, which, like Pell grants require no repayment, use a combination of need and academic competition. On the other hand, students must repay loans, and some loans do not depend entirely on the students' needs, for example, some Department of Education affiliated lenders such as Sallie Mae regard creditworthiness as a factor in lending, interest rates, and loan amounts.

What Are the Limits?

There are overall limits on Pell Grants and the amounts students can borrow in federal student loan programs. Pell Grants are limited to 150% of the expected student tenure. For a four-year degree, the maximum is six years or 12 semesters. Federal Student Loans also have a maximum amount. Called the aggregate limit, students' loans cannot exceed a total dollar amount for a career. The Dependent Undergraduate limit is $31,000, the Independent Undergraduate limit is $57,500, and the Graduate limit, which includes undergraduate amounts, is $138,500. There are several programs for reduction or forgiveness of federal student loans including full-time teaching, disability, and certain forms of public service.

Last Updated: August 21, 2017