Pell Grants: Do You Have to Pay Them Back?

Pell Grants are a valuable type of financial aid for college students who qualify for them. That's because Pell Grants typically do not need to be paid back. This is very different from federal student loans and from private student loans, both of which need to be repaid with interest. 

But while the answer to the question of whether you have to pay back grants is generally no, there are some exceptions to this rule. 

In fact, there are a limited number of circumstances when repayment of Pell Grant funds might be required. You'll want to understand the rules for when and how this can happen in order to try to avoid being forced to repay grant money that should be yours free and clear.

This guide will explain when Pell Grants have to be paid back, as well as shed some light on who can qualify for Pell Grants and how much money you may be eligible to receive.  

How much are Pell Grants worth?

Pell Grants are a free source of college financial aid available to undergraduate students who demonstrate financial need. For the 2022 to 2023 academic year, it's possible to receive as much as $6,895 in Pell Grant funding. 

The specific grant amount you will be eligible for per school year depends on your Cost of Attendance (COA) and your Expected Family Contribution (EFC). The Cost of Attendance is determined by your school and includes tuition, fees, room and board, and living expenses. The Expected Family Contribution is based on your dependency status; parental and/or personal income; assets; family size; and the number of people in your household who are attending college. 

You will need to complete the Free Application for Federal Student Aid (FAFSA) and provide your financial details in order to be approved for Pell Grant funding. 

Do you have to pay back grants?

Pell Grants are not loans. Because this money comes in the form of a grant, you do not have to repay Pell Grant funds under normal circumstances. 

There may also be other grants to help you fund your education that are available from the federal or state government; from your school; or from private institutions. You should apply for grants whenever possible, with the goal of covering as much of your educational costs as you can with free money that does not have to be repaid. 

When would you have to return Federal Pell Grants?

Although Pell Grants don't have to be paid back like loans do, there are certain circumstances where you may have to return Pell Grant money. This can happen if:

• You withdraw from your academic program early without completing your course of study.
• You drop from full-time student to part-time in your program or otherwise change your enrollment status so you no longer meet eligibility requirements.
• The federal government overpaid your Pell Grant and you received more financial aid funds than you were entitled to.
• You received financial aid from other sources, such as outside scholarships or grants, that reduced the amount of federal financial aid that you need and were eligible for. 
• Your family's financial situation changed in a way that reduced your eligibility for aid. 

If you are required to repay Pell Grant funds, you will receive notification from your school's financial aid office. You will have 45 days to repay the funds that you owe to the U.S. Department of Education or to make arrangements with your school's financial aid office for repayment plans. You should respond quickly to any request to repay Pell Grant money. 

Are Pell Grants taxable?

Although you shouldn't have to pay back federal Pell Grants in most cases, this doesn't necessarily mean that the entire amount you receive is always yours to keep. There's a possibility you may have to pay taxes on some of your Pell Grant money. 

As a general rule, Pell Grants are treated by the IRS as scholarship money. That means in most cases you will not be taxed on the money. However, you will need to meet two requirements in order to keep all of your Pell Grant money tax free:

• You must be enrolled in a qualifying educational program
• You must use the Pell Grant funds for "qualified educational expenses."

Qualified educational expenses include tuition as well as books and supplies that are required in order to earn your degree. They do not include room and board; travel; or other living expenses. If you do not use your entire Pell Grant funds for qualified expenses, any money spent on other purchases will need to be reported to the IRS. You can be taxed on the funds that you spent on other things. 

Maximize your grant money when paying for school

Because the answer to the question of whether you have to pay back grants is generally no, you should aim to maximize your grant program money when you are looking for resources to help you pay for school. It's also a good idea to apply for as many scholarships as possible because they also do not have to be paid back.

By taking full advantage of all available sources of free aid programs, you can minimize the amount you need to borrow and later repay. Still, taking out loans will mostly likely be necessary as most people can't afford to fund school without them. 

Federal Direct Subsidized and Unsubsidized Loans come with more borrower protections and better rates than most other types of student loan debt, so it's generally a good idea to exhaust these first before taking out other loans. Once you've done that, if you still need more money for school, private student loans could be the answer. 

Juno can help students find the most affordable rate for private student loans by negotiating more affordable rates with lenders on the behalf of their massive community of families. Join Juno today to learn more about your options for affordable private loans once grant and federal loan eligibility is exhausted.