Student Loans

What's a Pell Grant? How to Know If You Qualify for $20,000 in Student Loan Relief

Pell grants were created by the Higher Education Act in 1965 as a way to promote access to education

NBCUniversal Media, LLC

President Joe Biden's student loan forgiveness program announced on Wednesday aims to provide $10,000 in student debt cancellation for millions of Americans.

But for federal Pell grant recipients, that amount is even higher: $20,000

So what exactly is a Pell grant? And why is there a special benefit for people who got one?

Created by the Higher Education Act in 1965 as a way to promote access to education, federal Pell grants are special scholarships reserved for undergraduates and certain other students with the most significant financial need. The grants generally don't need to be paid back, but they often don't cover the full cost of college — so recipients take out additional loans.

Pell grant recipients typically experience more challenges repaying their debt, the Department of Education notes. In the academic year of 2020-21, around 30% of all students that enrolled in undergraduate programs in the United States were awarded Pell grants and nearly every recipient came from a family that made less than $60,000 a year.

Almost all Pell grant recipients are independent students or dependent students from the bottom half of the income distribution, according to a report from the Urban Institute on college affordability.

Through the program, lower-income Americans can currently receive up to $6,895 annually for roughly six years.

The Biden administration is targeting Pell grant recipients for additional forgiveness “to smooth the transition back to repayment and help borrowers at highest risk of delinquencies or default once payments resume,” according to the Department of Education.

Roughly 27 million recipients of Pell grants will now be eligible for loan forgiveness.

How to check if you received a Pell grant

If you're not sure if you received a federal Pell grant, there are a few ways you can confirm it:

  • Review any financial aid award letters or emails administered through Office of Federal Student Aid that describe your "FAFSA" award.
  • Check you entire federal student aid history on the Federal Student Aid website. This includes their Pell Grant history. You’ll find this information on your aid summary page once you’ve logged into studentaid.gov with your FSA ID.

I didn't receive a Pell grant, do I qualify for student loan forgiveness?

That depends. You qualify to have up to $10,000 forgiven if your loan is held by the Department of Education and you make less than $125,000 individually or $250,000 for a family. If you are a current borrower and a dependent student, you will be eligible for relief based on your parents' income, rather than your own.

How do I apply for student loan foregiveness?

About 8 million people will be eligible to receive relief automatically because the U.S. Department of Education already has their current income information, the administration said.

If the agency doesn't have your current income information or if you don't know if it does, you will need to fill out an application. That application is not yet available, but will be in the coming weeks, the administration said in its announcement.

To be notified by the U.S. Department of Education when the application is open, sign up at the Department of Education subscription page.

What if I've already paid off my student loans, will I see any relief?

The debt forgiveness is expected to apply only to those currently holding student debt. But if you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. Contact your loan servicer to request a refund.

Will the student loan payment freeze be extended?

The payment freeze will be extended one last time, until Dec. 31. The freeze started in 2020 as a way to help people struggling financially during the COVID-19 pandemic and it's been extended several times since. It was set to expire Aug. 31.

Interest rates will remain at 0% until repayments start. Under an earlier extension announced in April, people who were behind on payments before the pandemic automatically will be put in good standing.

Are there any other repayment options proposed under Biden's plan?

The Department of Education has proposed a repayment plan that would cap monthly payments at no more than 5% of a borrower’s discretionary income, down from 10% now. Borrowers will need to apply for the repayment plan if it’s approved, which could take a year or more.

For example, under the proposal, a single borrower making $38,000 a year would pay $31 a month, according a government press release.

The amount considered non-discretionary will also be increased, through the department has not said how much.

Discretionary income usually refers to what you have left after covering necessities like food and rent, but for student loan repayment purposes it’s calculated using a formula that takes into account the difference between a borrower’s annual income and the federal poverty line, along with family size and geographic location.

“What’s tough about income-driven repayment is that it does not take into account your other liabilities, such as your rent payment,” said Kristen Ahlenius, a financial counselor at Your Money Line, which provides financial literacy training. “If someone’s living paycheck to paycheck and their rent is taking up half of their paycheck and then their car payment takes the other, they have to choose. Unfortunately, income-driven repayment doesn’t take that into consideration, but it is an option.”

Student Debt Relief offers a calculator to help determine your discretionary income.

The Associated Press/NBC
Contact Us