The more you research how to pay for school, the greater the options you’ll discover. For instance, most people start out thinking that the parents have to save all of the money in order for a student to go to college. However, as they grow older, they learn about opportunities called scholarships, which is free money that helps pay college tuition.
As students get even closer to the time in their lives when they’ll attend college, they hear about financial aid, which is a term that covers a wide variety of options to pay for school. Financial aid covers student loans, work study and grants
, like the Pell Grant. But before we cover how does a Pell Grant affect my taxes, let’s take a deeper look into what the Pell Grant is and how to qualify for one.
What is a Pell Grant?
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A Pell Grant is a need-based grant that students can qualify for when they apply for financial aid. They are typically reserved for the neediest students and do not need to be paid back. While mostly undergraduate students receive Pell Grants, some graduate students can qualify as well. Pell Grant amounts vary by student but the most an eligible student can receive is $6,195.
How Do I Get a Pell Grant?
To be considered for a Pell Grant, you must fill out the FAFSA (Free Application for Federal Student Aid). The FAFSA asks questions about you and your family’s financial circumstances in order to ascertain how much you can afford to pay for college. The federal government then takes that information to determine the EFC – or Expected Family Contribution.
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Typically, families that have a total income of $50,000 per year or less qualify for Pell Grants; however, most Pell Grants go towards those that have a total family income of $20,000 or less.
Most of the time, financial aid is awarded on a first come, first serve basis, and the FAFSA becomes available on October 1. If you plan to apply for financial aid
– and everyone should – fill the form out and submit it as soon as possible after October 1. You do not want to miss out on Pell Grant funds in the event that you’re eligible.
How Does a Pell Grant Affect My Taxes?
The Pell Grant does not usually affect taxes; however, there are ways in which it can if you’re not careful. A Pell Grant will be considered tax free if it meets the following requirements:
• You are enrolled in a degree program or a training program that prepares you for a specific type of employment upon completion.
• The Pell Grant is used for qualified education expenses only.
Qualified expenses is defined by the federal government as tuition, fees, books, supplies and equipment required for your courses. You’ll notice that room and board is not included as well as transportation to and from school. If your Pell Grant is used for unqualified-education related expenses like room and board and transportation, the amount you spend will be treated as income.
As you ask yourself how does a Pell Grant affect my taxes, you’ll find that you have to report unqualified education related expenses on your taxes. For example, if you received a $4,000 Pell Grant and used $1,000 of those funds on room and board, you would have to report $1,000 income on your taxes.
However, just because you report it, doesn’t necessarily mean that you’ll have to pay taxes on it. There are other factors to consider, such as other income you report, your filing status and the deductions and credits for which you’re eligible.
Finding Other Ways to Pay for School
If your Pell Grant falls short of covering your college costs, you’ll need to find other ways to pay for school. If you have qualified for a Pell Grant, you may qualify for other forms of financial aid, like work study, student loans and other grants.
Work study is an opportunity for students to work a job that’s on campus; the money earned can either cover tuition or help students with student living costs. These jobs offer flexible hours and a schedule that doesn’t interfere with classes.
Student loans are another option for students. According to The Federal Reserve
, over half of all college attendees use student loans to pay for college. Federal student loans, which all students can qualify for if they file the FAFSA, have the lowest interest rates of any education loans. That’s why students should always borrow federal first, and then look to private student loans if they need further financing.
Pell Grants are not the only grants available to students. Students can qualify for federal, state and intuitional grants when they fill out the FAFSA. These typically go to the neediest students; however, there are grants for students who demonstrate academic achievement. At times, these grants require their own applications, but fortunately, Fastweb lists grant opportunities in addition to scholarships.
At Fastweb, you can find out which grants and scholarships you qualify for by filling out a free profile. We host a database of over 3.4 million scholarships and grants, meaning there are definitely opportunities for you. All you have to do is answer a few quick questions to create a profile, and you’ll get access to scholarships and grants that are relevant to your major interests, colleges of choice and academic achievements. You can also add details about your extracurricular involvement, places of employment and parents’ information in order to find more opportunities that are right for you.
Just like the Pell Grant, scholarships and other grants can affect your taxes. Some scholarships dictate that the funds can only be used for education related expenses. If you do use a scholarship for something other than the specified college costs, you will have to report it on your taxes as income.
Pell Grants, Taxes and Scholarships
As you can see, there are many different ways to pay for school. To start, fill out the FAFSA
to see if you qualify for a Pell Grant. Use the funds for education related expenses in order to avoid paying taxes. Finally, search out other options to pay for school, like work study, student loans and scholarships. The more applications you fill out, the better your chances of attending college with very little student loan debt.