The Advantages of Pell Grants over Student Loans: A Closer Look at Your Financial Aid Options

Financial aid helps students, especially those from very financially weak backgrounds, have a chance at career schools and colleges by paying for their education and related expenses, making the former more affordable and lowering the number of dropouts.

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Many federal financial aid options exist, such as work-study programs, scholarships, and student loans, but the Pell Grant easily emerges as one of the most helpful, accessible, and convenient options for students, especially compared to student loans.

Read on to know why.

I. The Pell Grant

The Pell Grant is a federal need-based grant that’s awarded to undergraduate students in exceptional financial need. It is the Department of Education’s largest grant for undergraduate students and has been awarded to students in need since 1973. The grant is named after Rhode Island’s Senator Claiborne Pell, the program’s first chief sponsor.

The Pell Grant is usually only awarded to students who haven’t earned their graduate, bachelor’s, or professional degree, though in some cases, exceptions are made for students in post-baccalaureate teacher certification programs.

The grant can be used to pay for educational expenses such as tuition, room and board, fees, and other college costs.

A. Eligibility Requirements for the Pell Grant

To be eligible for the Pell Grant, students must fulfill the following requirements:

  • They must display exceptional financial need.
  • They must be individuals enrolled in an undergraduate or vocational course and must be accepted into a school participating in the program.
  • They must not have earned their professional, graduate, or bachelor’s degree.
  • They must meet the general eligibility requirements for federal student aid (be a US/eligible citizen, hold a valid Social Security number), be accepted for enrollment/enrolled as a regular student in an eligible certificate or degree program, maintain satisfactory academic progress, and be enrolled at least half-time to meet the Direct Loan program funds eligibility requirements).
  • They must complete the Free Application for Federal Student Aid (FAFSA) to apply for the Pell Grant.

B. Advantages of the Pell Grant

Here are some of the advantages of the Pell Grant.

1.    Need-Based Financial Aid

Unlike merit-based aid, which offers financial support only based on the academic achievements of students, need-based aid offers financial support to students who are in dire financial straits, even if their academic achievements are not exemplary.

For need-based aid, only the basic eligibility criteria need to be met; students don’t need to exhibit proof of exceptional academic prowess to earn the grant.

2. No Repayment Required

Unlike student loans, which place students under constant pressure to repay the loan, the Pell Grant doesn’t need to be repaid and is, therefore, much less pressurizing.

The Grant needs to be repaid only if students change their enrollment status or withdraw from the course after their grant amount has been disbursed.

3. Can Be Combined with Other Financial Aid Options

The Pell Grant may still be awarded to eligible students regardless of any other financial support/aid that the student is availing of. There are no exclusivity terms that prevent students from seeking further aid or continuing to use the aid that already exists.

4. Limited Impact on Future Financial Commitments

The mental and monetary stress of having to repay a student loan can severely impact students, especially those having difficulty finding employment.

The burden of loan repayment also causes a huge dent in any future financial commitments that the student may have, forcing them to possibly forgo or severely compromise on various financial plans and goals (such as further studies, housing, retirement, and even basic needs, among others).

C. Potential Limitations of the Pell Grant

Like all programs, the Pell Grant program has its share of limitations.

1. Amount Awarded May Not Cover All Educational Expenses

The Pell Grant is too little to cover all the expenses related to higher education. In its early days, the grant used to cover 92% of state-institution-education-related costs, whereas now, it only covers about 20%.

Unless other forms of financial aid exist in the student’s life, the Pell Grant may not suffice for very financially weak students, which means a higher chance of discontinuing education.

2. Annual and Lifetime Limits

The Pell Grant comes with both an annual and a lifetime limit. For the academic year 2023-24, the maximum amount that can be granted to a grantee is $7,395 (a $500 increase from last year).

The annual lifetime limit means that there is a maximum amount of the grant that can be received over the grantee’s lifetime. This is known as the Federal Pell Grant Lifetime Eligibility Used (LEU). The lifetime limit is about six years or 12 terms. Grantees are notified when they close in on the limit.

II. The Downsides of Student Loans

Here are some of the disadvantages of student loans and why applying for the Pell Grant makes more sense.

A. Long-Term Financial Burden

Student loans are a long-term financial burden as the principal has to be paid back by the students within a certain period, but until this time, a monthly or yearly interest needs to be paid. Some issues could arise out of this.

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1. Interest Accrual and Capitalization

The interest on student loans starts accruing from the time the loan is disbursed, which means that students may have to pay interest from the time they’re in college. If this interest isn’t paid, it starts to accrue and the unpaid interest gets added to the loan’s principal amount (this is known as interest capitalization).

2. Potential for Increasing Debt over Time

Sometimes, economic conditions and factors such as stimulus programs, tax cuts, decreased tax revenue, unemployment, and increased government spending can cause a sharp increase in debt and interest rates, which in turn can cause a significant increase in the loan amount to be repaid.

These factors make student loans a long-term burden that slows financial progress, limits employment options, and can even impact future generations.

B. Repayment Obligations

The repayment obligations can cause the following issues.

1. Impact on Credit Score

A student loan is an installment credit and is a part of the “credit mix” section on the credit report. This section makes up 10% of the report.

Not paying the installments on time will cause the credit score to drop, which will affect the credit eligibility of the student and severely hamper future loan approvals, including credit cards, types of consumer credit, car/home loans, renting an apartment, getting a cell phone plan, signing up for utilities, insurance, etc.

Even if they do manage to get a loan, those with low credit scores are generally charged higher interest rates.

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2. Loan Default Consequences

Defaulting on your student loan payment can lead to severe consequences, such as acceleration (your unpaid loan balance, including interest, becomes immediately due), loss of eligibility for federal student aid, damage to your credit rating, garnished wages, being taken to court, bearing collection expenses, withholding of official transcripts by the school, inability to sell or purchase assets, treasury offset, etc.

C. Opportunity Cost

A student loan hanging over your head will impact a student’s life choices as until the loan is repaid, a huge chunk of their monthly funds is going to go towards loan repayment. This means sacrificing or compromising other life events, such as owning a home, starting a family, traveling, etc.

III. The Importance of Pell Grants in Reducing Student Loan Debt

Student loan debt in America currently stands at a whopping $1.757 trillion and this amount is only increasing. The average federal student loan debt balance stands at $37,574, with 43.5 million borrowers of federal student loans in the country.

Not only is increasing student loan debt a problem for students but it can also negatively impact the economy.

As a grant and not a loan that needs to be repaid, the Pell Grant can bring down student loan debt.

Pell Grant recipients tend to do extremely well academically. For example, Pell Grantees in Boston College accounted for 14% of the student population and displayed a 96% rate of graduation, topped only by Princeton and CalTech. This graduation rate helped Boston College earn the third-best graduation rate in the country for Pell Grants.

IV. Maximizing Your Pell Grant Eligibility

To improve your chances of receiving the Pell Grant, the following tips will come in handy.

A. Tips for Filing a Successful FAFSA Application

  • Apply as early as possible; the sooner you apply, the more aid you could be eligible for.
  • Apply online; this is faster and more convenient. Online forms are also processed faster. You can also retrieve your IRS data and have it automatically populate your FAFSA.
  • Avoid common errors such as leaving too many fields blank, listing your license/Social Security numbers wrong, not using your legal name, entering the wrong address, making other mistakes/failing to report accurately the things asked on the form when filling it, forgetting to sign it, etc.

B. Exploring Additional Financial Aid Options

As mentioned earlier, the Pell Grant alone may be insufficient to cover your needs. Since the Pell Grant allows it, looking at additional financial aid options, such as work-study programs, scholarships, etc., is a good idea.

C. Smart Financial Planning for College

Plan out your college finances smartly. Make a list of all the major expenses you’re likely to incur, such as purchasing textbooks, room and board, food, etc. Budget and allocate wisely and on a priority basis to ensure that you don’t go out of pocket or worsen your financial situation.

V. Conclusion

Pell Grants are advantageous as they don’t have to be repaid and are more easily accessible than student loans, as the requirements are less stringent and more inclusive. They also minimize student loan debt, which can lead to a more secure, worry-free financial future.

For students looking for financial aid, the Pell Grant is a highly viable financial aid option that deserves serious consideration.


  • Hussain Shoaib

    Hussain Shoaib is an author and digital marketer with expertise in financial aid and education. He has extensive knowledge of the Pell grant and FAFSA, and has published numerous articles on these topics.

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1 thought on “The Advantages of Pell Grants over Student Loans: A Closer Look at Your Financial Aid Options”

  1. This may or may not be a stupid question, but if you have You have 291.385% of your Pell Grant funding remaining why wouldn’t they just apply the funds to your owed student loan debt?


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