What’s a Pell Grant? How it affects student loan forgiveness

President Biden’s student loan forgiveness program announced Wednesday aims to provide $10,000 in student debt cancellation for millions of Americans. But for beneficiaries of the federal Pell grantthat amount is even higher: $20,000

So what exactly is a Pell Grant? And why is there a special benefit for people who have them?

Created by the Higher Education Act in 1965 as a way to promote access to education, federal Pell Grants are special grants reserved for undergraduate students and certain other students with greater financial need. Grants usually don’t have to be paid back, but they often don’t cover the full cost of college, so recipients take out additional loans.

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

Approximately 27 million Pell Grant recipients will now be eligible for loan forgiveness. But for some, $20,000 will hardly hurt.

Lynn Hunt, a data analyst in Portland, Ore., is a Pell Grant recipient who borrowed $45,000 to $50,000 to attend the University of Wisconsin and has paid back about $15,000, but still owes $70,000 in interest.

“I know (Biden) mentioned, you know, $20,000 for Pell Grants, but the people who had Pell Grants had to take out the most loans,” Hunt said. “So $20,000 is not helping most of these people in any substantial way. And what happens every time we get one of those half-measures is that the can is kicked for another decade.”

For Yaneth Peña, however, the money will make all the difference. Peña graduated from North Carolina State University in 2014. She got about $4,000 in grants and about $25,000 in federal loans. Under Biden’s forgiveness plan, his debt would be reduced to $5,000.

Relieved of the financial burden, Peña said she could now seriously pursue a graduate degree, something she said she hesitated to consider in the past because of her loans.

“This could change everything,” Peña said.

Pell Grant recipients tend to experience more trouble paying off their debt, the Education Department notes. In the 2020-21 academic year, about 30 percent of all students enrolled in undergraduate programs in the United States received Pell Grants, and nearly all recipients came from families earning less than $60,000 in year.

Almost all Pell Grant recipients are independent students or dependent students in the bottom half of the income distribution, according to a report by the Urban Institute on College Affordability.

Through the program, lower-income Americans can receive up to $6,895 per year for approximately six years.

If you are not sure whether you have received a federal Pell grant, review the financial aid award letters administered through the Office of Federal Student Aid.

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