Does a Pell Grant Need to Be Paid Back if I Drop Out?

Dropping out of college has financial consequences. Most colleges will refund a portion of your tuition, depending on how early in the semester you withdraw. However, dropping out of school often results in a Pell Grant overpayment. Under the Pell Grant program, if you have received more funds for a semester than you are eligible for, an overpayment has occurred.

Federal law requires recipients to pay back overpayments of Pell Grant funds. A student who withdraws from school within the first 60 percent of an academic term is no longer eligible for a Pell Grant and must return a portion of his unearned aid funds to the federal government. If you drop out after the 60 percent mark, you have earned the total amount of your Pell Grant award for the academic term. The federal government will not require you to return any of the funds.

When a student who has a Pell Grant drops out of school, the amount of earned aid is prorated according to the student’s official withdrawal date or, if the student never withdrew formally, the date of last class attendance. Using a complicated Department of Education formula, your school’s financial aid office will calculate the amount of unearned aid you must repay. The school will send you a notice of overpayment and a repayment bill. If you fail to repay the amount within the time period specified, the school will turn your debt over to the Department of Education for collection.

If you’re considering dropping out of school, investigate whether you are eligible for a leave of absence. If your college grants you a leave of absence during the last 60 days of a semester and you are enrolled for at least six credits the following semester, federal law does not require you to repay funds from your Pell Grant. However, the circumstances of your leave of absence must meet Department of Education guidelines. Medical and family emergencies are common situations that meet this criteria.