Unused Pell Grant Money: Where Does It Go? (Refunds Explained)

The federal government has distributed Pell Grants to students in need for over 50 years, an alternative to private loans.

When students fill out the Free Application for Federal Student Aid (FAFSA), the Department of Education (DOE) determines the student’s eligibility for the program. Then, when the student is accepted into a postsecondary school, they receive a financial aid award letter informing them how much money they qualify for through the Pell Grant program.

Pell Grant awards are not based on other financial aid you qualify for. Some students receive more money than they need to cover tuition, living on campus, and other expenses.

What happens to unused Pell Grant money?

Your school refunds the amount to you, but the Internal Revenue Service (IRS) may consider it taxable income in some circumstances. 

How Do I Receive Pell Grant Money and Apply It to Educational Costs?

When you receive a Pell Grant from your school: 

• The school can take out the cost of tuition, fees, and room and board without your permission.
• The school will give you the remainder in your school account or through a check in the mail.
• The school may ask you if you wish to apply the remaining funds to other costs, but they need written authorization first.

If you have money left over from your Pell Grant, you can ask the school to hold the funds for you, or you can receive the remaining amount as a refund. Pell Grants go toward education expenses, except student loan expenses. For example, you cannot use your Pell Grant refund to pay the interest on your unsubsidized student loan.

Schools can disburse Pell Grant money 10 days before the first day of classes, as long as you are enrolled for that academic period. If you drop classes or leave the program, your school may ask you to return some or all of your Pell Grant funding.

Your school may determine that you were eligible for Pell Grant funding if you appeal the original decision. If their determination comes after the beginning of the academic year, the school will apply the funds to any educational costs.

Different schools pay Pell Grants at different times, including: 

• At the beginning of the semester, trimester, or quarter
• In one payment at the beginning of each academic year
• After the add/drop period to ensure only enrolled students receive money
• In monthly installments to help with living expenses

If, for any reason, the school receives its Pell Grant funding late, it can still distribute awards to eligible students who have completed the eligible academic year or graduated from their degree program. 

What Happens When I Receive More Pell Grant Money Than I Need?

Once the school distributes your remaining, unused Pell Grant money, where does it go? This depends on your needs.

Many students spend Pell Grant refunds on additional school expenses, like transportation to get to and from campus, food on campus, lab fees, and even surprise costs, like needing a new laptop. These are called institutional expenses.

You are legally allowed to keep money from your Pell Grant and use it for non-education expenses. However, you must keep track of what you do not spend on education and report this as income on your taxes. The IRS considers the Pell Grant a scholarship for tax purposes, meaning you do not have to claim it on your taxes, as long as there is no money left over after you pay for your education.

Schools will combine student charges into one account, which you can access through an online portal or by talking to your student financial aid office. This list will help you keep track of what you need to file on your tax return. For example: 

• You receive $4,000 from the Pell Grant program
• Your tuition for one semester is $2,000
• You spend another $1,500 on education expenses
• You have $500 left over to claim as taxable income

If you are a dependent student  (undergraduate students aged 18 to 24 who are still claimed on their parents’ taxes), you may need to ask your parents for help regarding your income versus being claimed as a dependent. 

What Are the Best Ways to Spend Unused Pell Grant Money?

Getting more financial aid than you need can be a good thing – especially if it is free money and not student loans. There are several positive ways you can use this money as a student. You can:

• Pay for car repairs if you drive to campus
• Buy new clothes for the upcoming school year
• Pay bills, if you live in off-campus housing
• Pay your phone bill
• Buy a planner or calendar to help you manage activities throughout the year
• Buy books that are not part of your curriculum
• Cover gasoline costs to drive to work or a volunteer position
• Put it in a savings account to pay your taxes

For many students, the Pell Grant money goes directly toward the cost of their education, with other scholarships, federal student loans, and even private student loans making up the difference. However, if you find yourself with more money from the Pell Grant than you need, carefully consider how you will spend this amount.

You may need it for related educational expenses that your school does not automatically deduct. You can talk to a counselor in the financial aid office to understand the difference between educational costs and personal costs, so you can manage your taxes.

Unused Pell Grant money goes to you – the person who qualified for that amount from the Pell Grant program. You can spend it on whatever you deem necessary.