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Federal Pell Grant vs. Stafford Loan

by April Sanders

College is expensive, but most universities and community colleges – with the help of government funding – offer financial aid packages that include a combination of scholarships, grants and loans. Federal Pell Grants and federal Stafford Loans are available to all college students who meet minimum requirements. To apply for federal assistance, students must fill out the Free Application for Federal Student Aid (FAFSA).

Pell Grants Don't Have to be Repaid...

Pell Grants are awarded by the federal government to students who demonstrate financial need. Like scholarships, they do not have to be repaid. In addition to demonstrating financial need, students have to meet a number of requirements to be eligible for federal grants. Pell grants are given primarily to undergraduates, but some students enrolled in a post-baccalaureate teacher certification program may also be eligible for assistance. The size of your grant will vary depending on your income, how many years you stay in school, the cost-of-attendance at your college or university and how many credits you take on each year.

But Stafford Loans Do

There are two types of federal Stafford Loans. Subsidized Stafford Loans are based on financial need. The government pays the interest on these loans while you are in school or during a period of approved deferment (i.e., a time when you cannot afford to make payments). Unsubsidized Stafford Loans are not based on financial need, and you must pay the interest accrued over time -- even while you are still in school.

Determining Your Grant and Loan Limits

Pell Grants and unsubsidized Stafford Loans are given to those who demonstrate financial need based on the results of the FAFSA. The limits are primarily determined by the income made during the previous year, which is printed on your tax forms. If you are an independent student, or have dependents of your own, the income reported on the FAFSA may be adjusted. Some colleges will also make adjustments of their own based on other factors, including the loss of a parent’s job. The adjusted income can be used to determine the size of your Pell Grant and maximum Stafford Loan payment.

How Much Will I Receive?

The maximum Pell Grant award depends on federal legislation, and the package limit can change from year to year. Students with the most financial need can receive up to $5,645 for the 2013–2014 school year, according to the U.S. Department of Education. This amount goes down in increments depending on the financial resources of a student. One student may only receive several hundred dollars, while another may be granted the maximum amount. Stafford Loans are also offered in increments, and the annual loan limit increases during the second and third years of college. The borrowing limits are based on need. As of the 2013–2014 school year, incoming dependent freshmen may borrow a maximum of $5,500 in Stafford Loans, and no more than $3,500 of that sum can be in the form of subsidized loans. Undergraduates who are juniors and older may borrow up to $7,500, with up to $5,500 of that sum coming from subsidized loans.

About the Author

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