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What Are Pell Grants?

by: sahil | last updated: February 13, 2010
Category: Personal Finance | Tags: Pell grants, student loans, loans, student, pose secondary education, education

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What Are Pell Grants?

The Pell Grant program is a post secondary educational grant program sponsored by the Department of education in the United States. Named after U.S senator Claiborne Pell and originally referred to as the Basic Educational Opportunity Grant program, it does not require any repayment. The criterion for being qualified for a loan is determined by the “financial need” formula which is determined by the U.S Congress using the Free Application for Federal Student Aid (FAFSA) plan.

Pell Grants are offered to a student whose family is unable to pay for the education and has a combined income of less than USD 20,000. Even though these grants can be useful, the amount that is approved is not more than approximately $4000. Considering the expenses that are incurred for higher and secondary school education, the amount may seem low. However, it can certainly help in minimizing the amount of debt for low-income families and students.

The amount that is awarded is based on the expected family contribution (EFC) which is derived from the information available on the FAFSA. The EFC is the addition of a percentage of disposable income (left over income after deducting allowances for fundamental living expenses and taxes) and a percentage of net assets (assets remaining after deducting an asset protection allowance). Various assessment rates and allowances are used for dependent students, independent students with no dependents, and independent students who have dependents.

The EFC effectively measures the ability of the parent or student to contribute to educational expenses. The lower the EFC, higher are the chances of being qualified for Pell grants. This means that if the EFC of a student is 0 then there is high probability of being granted the aid. However if the EFC number is on the higher side (99,999 being the highest), lower are the chances of getting the funds.

The process of this program is kick started after filing for FAFSA and the student receives a Student Aid Report (SAR) or when the institute receives an Institutional Student Information Record (ISIR). Since these grants are given to students with low income families, these have become a yardstick to measure poverty. This simply means that experts will assess you as poor if you are the recipient of this grant.

Pell grants have also been criticized by many for predatory lending practices where students are preyed upon by the educational institute or college. The University of Phoenix which is the largest recipient of Pell Grants has been accused of such practices and also has a very low graduation rate compared to other colleges and universities. Moreover, the amount of capital required for higher education is much more than the amount that is granted. This means that very few people in the low income bracket are able to avail of the facility and still have to pay almost 3/4th of their educational expenses even after being granted the aid.