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Funding College: Pell vs Stafford

College tuition has continued to skyrocket significantly over the past decade. To help ease this financial strain college can place on a student or their parents, options such as Pell Grants and Stafford Loans are readily available. Please read below to understand the differences between these two types of college funding options.

Pell Grants

The Federal Pell Grant program provides financial aid money to students on a need-basis. These grants do not have to be repaid. These grants are available to low income undergraduates and some graduate students. Grant money can be used at over 5,400 universities and colleges that participate in the Pell Grant program. For the 2010-11 award year, the maximum awarded amount for a Pell Grant will be $5,550.

To determine if a student is eligible for a Pell Grant, the student will need to complete a Free Application for Federal Student Aid or FAFSA. This form helps the United States Government determine the financial need of a student. A student can apply for student aid independently or as a dependent of their parents. After the government has received the FAFSA, the student or the university will receive a Student Aid Report which will notify the student if they are eligible for a Federal Pell Grant and the amount they will receive.

Pell Grants can be awarded directly to the student or to the university or college. Payment will come from the government once a term.

Stafford Loans

Federal Stafford Loans are government issued student loans that are not based on need. These loans are available to university and college students and nearly all students can qualify for these loans. Stafford Loans are also available to graduate, professional and medical students. Students are required to repay Stafford Loans. These loans generally have a very low interest rate, which is fixed. Currently, Stafford Loans have around a 5.60% interest rate. A student does not have to begin repaying these loans until after they have left school.

To be eligible for a Stafford Loan, a student must be a U.S. citizen, National permanent resident or an eligible non-citizen. A student must be registered at a university or college that accepts Stafford Loans. Students must be enrolled at least part time at school.

Stafford Loans have two variations. These variations are the Federal Family Education Loan Program and the Federal Direct Student Loan Program. The difference between these variations is that the first type is provided by private lenders and is guaranteed by the federal government. The second type of loan is a direct loan, which is given directly from the United States Government to the student or their parents.

Stafford Loans can either be subsidized or unsubsidized. For subsidized loans, the US Government pays the interest while a student is in college. For unsubsidized loans, the students pays all of the interest accrued for the loans once they have left school.