What Happens to Unused Scholarship/Grant Funding?

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This may be a question a lot of students don’t realize they have a general say on how or when it comes to receiving a refund check in the mail or as a direct deposit to a student’s college bank account. Because it does happen and we are here to explain why, what can be done, how to save, and more.

Unused scholarship funding or grant funding has happened and it seems a bit strange to some. Whoever has excess funding because a typical U.S. 2-year education is an easy $50,000 feat. While a 4-year education is an easy $100,000 plus diabolic mess. F.Y.I the United States has the highest tuition amount required in the world. That’s just tuition, that does not count in equipment fees, housing fees, and more. That’s why it seems too funny to say that someone may have received a check for unused funding.

Let’s look at the Pell Grant, which is one of the most extravagant grants in the United States. First off, the Pell Grant is only available to low-income student facing Finanancial hardship, because grants do not need to be paid back by the student. Grants are not student loans, or a loan in general. The Pell Grant simply grants a student with a certain amount to cover their entire education, and that can leave students with left over extras.

The Pell Grant can be paid to a student in only two ways: directly to the college fund bank account that is issued to each new student or to the student’s personal checking account.

Students can only apply for the Pell Grant is they have applied for financial aid first. This is a requirement when filling out the Pell Grant information packet. First, after receiving the Pell Grant funding, the large amount will be applied to paying off the tuition in full. The other fees that are required to be paid off as per direction from the institution, that Pell Grant money that remains will be directed towards paying off extra fees.

It can take a bit of time to receive a refund that may be delivered as a direct electronic deposit or as a physical check to the student.

Taxes, Taxes, Taxes

After receiving a refund check from something as massive as a Pell Grant, the student has to report this refund check to the IRS when tax time comes around. Because this will affect the students’ taxes since essentially, they have received an “award amount” of money.

Sadly, students tend to forget or don’t know about this step. But if the students reports that they received a refund amount and do their taxes correctly, they will not be targeted to pay back more and receive less during tax season.

Do Dropouts Get to Keep the Award Amount?

Normally, if a student stop attending their university and they have a Pell Grant fund that was granted to them, that fund will be sent back to the foundation. Because under strict law and rule the reason that Pell Grant was funded to that student was to ensure their payment for a secure 2-year to 4-year education. If a student breaks that rule, then the Pell Grant money will be sent back to the foundation to be used for another student who will complete their college career.

This was deemed a myth for a while until recent college dropouts conducted a survey to see how many students had their Pell Grant funding revoked and taken out of their checking accounts.

Can the Funding Be Spent on Anything?

Absolutely not, unless that student has received that refund check… then yes, anything goes. But since the Pell Grant is in the college bank account issued to the student, only college-based necessities need to be paid in full first.

If a student ends up receives a refund check for the unused amount, then… yes, the student can spend that amount on anything they would like to. However, the student may want to save that remaining check amount to pay off the higher taxes they can expect the following tax season.

Although an alternative route students can take is asking (must have written authorization) the school to hold the funds until they can be spent on any other excess fees. This always that unused money to be safely kept and there will be no need to send in a letter to the IRS stating that as a student, you have received too much from the Pell Grant foundation.

Keep Track of What is Spent

The hidden rule to grant money is that the student should keep records (like a check book or online google spreadsheet of the spent amount) on hand. Because if the unused amount is taken out and spent on something that is deemed non-educational, then the IRS will need the receipts for that amount spent. It would be best to include a personal finance course within the first-year to account exactly how to keep track of grant fund spendings.

The Grey Areas that Are Considered Educational Spending and Not

  • Pay for car repairs if the student drives to campus
  • Buy new clothes for the upcoming school year – or replace clothing items
  • Pay bills, if living in off-campus housing
  • Pay the cell phone bill
  • Buy a planner or calendar to help manage activities throughout the school year – include study time for finals
  • Buy books that are not part of the school curriculum but aid in the subject matter that is being studied
  • Cover gasoline costs to drive to work or a volunteer position
  • Put it in a savings account to pay the following years taxes

Is there Ever a Time Grants Have to Be paid Back?

No, however, a student should know the 4-type of grants available to college students. They are the Pell Grant, Federal Supplemental Educational Opportunity Grants, Teacher Education Assistance for College and Higher Education Grants, and State-Issued Grants.

For the Teacher Education Assistance for College and Higher Education Grant, individuals that intend to be teachers or who are teachers pursuing a bachelor’s or graduate degree can receive up to $3,000 plus per year provided that they agree to teach at a low-income school for four consecutive years.

Otherwise, if the teachers are teaching at a non-low-income school and skip out on the 4 years, the grant will convert into a loan, which must be repaid.

If a student drops out (the dropout rate while being awarded the Pell Grant is around 60%) will need to repay a portion back. Not the entire amount but the fact that free college money was to cover a tuition that would in return allow a student to not worry about paying tuition, let alone take out student loans… students will need to repay a percentage back.

State-Issued Grants

These grants differ from state to state; however, each state follows the same rules when it comes to eligibility. Individual students may submit applications for a funding opportunity on their own behalf (i.e., not on behalf of a company, organization, institution, or government). They must be registered with an individual applicant profile. This means individuals who sign up and submit on their own behalf can only submit to the grants that dictate that only an “individual person” can apply. Most of the funding opportunities involved with state-issued grants are for organizations, not individuals.

Federal Supplemental Educational Opportunity Grants

These grants are awarded to undergraduate students with exceptional financial need up to the amount of $4,000 per year. The amount of the award is determined by the college’s financial aid office, and depends on the student’s financial need and the availability of funds at the college you attend.

The FSEOG program is administered directly by the financial aid office at each participating school. Not all schools participate.

Be sure to carefully research and ask the admissions office if the university participates in Federal Supplemental Educational Opportunity Grants, if not a different school will need to be considered when applying.

Does Financial Aid Work the Same Way as Grants?

When a student drops out and is certified as a financial aid student, and if that same student has taken out student loans…drop outs will immediately be notified that they must start paying back on those student loans. Oddly enough, being a  college student and on financial aid was covering the time frame for when a student did not need to pay back student loans.

Federal loans and most private loans give students this six-month grace period after entering repayment mode. When those six months are up, the student has to start making payments when they are notified to do so.


What About Scholarships? What About the Unused Amount?

Well, if a student receives the prize amount from a scholarship and that amount did not end up in a college bank account, a student can do what they would like with the amount.

However, if a student is considering dropping out because of financial hardship, the student needs to contact the scholarship foundation to ask for a larger amount. Which 80% of the time is granted to allow the student to stay in college or university. Why? Scholarships are only available to use if the student is a creditable college student. Otherwise, there is no reason for the scholarship to be paid to an individual who is not partaking in a higher education.

If a student drops out without any warning to the scholarship foundation, the foundation will ask the student to refund the money. Or repay.

The Right Time to Drop a Class and Keep the Grant

A clause with most universities and colleges is for all students right after school starts. For about 3 months into the year, students have a grace period where they can drop a class and switch subjects. This way a student can keep moving forward and it caters to a fewer dropout rate than the previous years before.

Unused Scholarship or Grant Funds Can Cost Students

This is why every student should fill out exact income information so they do not end up with an extravagant amount of left-over funds. At times the US Treasury as asked for excess funds to be returned so they can distribute to other individuals or programs that may have fell short on funds. Along with the probability an individual will have higher taxes if they received an excess amount from the government, since grants are government funded.

Scholarships are rarely refunded back to the foundation, however, there have been incidents where scholarships have been revoked based on the student’s higher income status. Since scholarships are meant for students who simply need the funds to graduate and pay for tuition. Students should always share their correct and current information to ensure there is no mess up or confusion.

Students Who Receive Grants/Scholarships

The students who end up receiving grants and scholarships are thankful for the funds to complete their higher education. Most of the funds is absorbed by the university or college to pay off any remaining fees like laptops, lab equipment, textbooks, calculators, uniform attire (if required) and daily lunches from the student café. The same goes for students who may have a free elective that involves playing an instrument, painting, drawing, sculpting, photography, graphic design, and more. Those fees will also be covered by either the grant or the scholarship.


What Happens to Unused Funds Depends on the Person

Eventually extra funds can be used for a number of things, however, it’s about the person who spends it. Spend carefully and for the right reasons since all purchases need to be saved and reported to the tax revenue office the following year. All students should look up some research about unused grant or scholarship funds and ways to spend correctly. Or students can talk to their colleges’ financial aid admission office to ask what funds can be distributed and were.  This is the most careful way to use excess grant and scholarship funding.

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