The Student Loan Ranger can be a bit of a broken record when it comes to reminding readers of the importance of reading and understanding the terms and conditions of student loans. This mantra isn’t unique to student loans. In fact, any financial advisor will tell you how important it is to read and understand the terms for any type of debt you take on.
But did you know that it can be just as important to understand the terms of any grants and scholarships you are awarded? At face value, that doesn’t seem to make a lot of sense. After all, a grant is “free money,” and free money doesn’t have to be repaid — unless it does.
[Learn about student loan repayment programs for teachers.]
Having a grant converted into a loan you must repay is most likely to happen with the Teacher Education Assistance for College and Higher Education grant program. In fact, according to a report issued just this past winter, about one-third of all TEACH grants disbursed since the program’s inception in 2008 have been converted into loans. Of those grant — and now loan — recipients, 19 percent did not understand that the grant could be converted into a loan.
In order to receive a TEACH grant, a student must attend a school that participates in the program and enroll in a program of study that prepares students to teach as a “highly qualified” teacher — those who have passed a rigorous state test in their area of teaching, or who have become state certified, for example — in a high-need area of teaching, such as science, mathematics or foreign language, among others.
The student must also sign an “agreement to serve,” which states that he or she will complete certain obligations within the first eight years after completing their credential or otherwise ceasing enrollment in the TEACH-eligible program. These requirements include that the student will work as a full-time teacher for at least four years at a low-income school in a high-need field. They must also provide the U.S. Department of Education with proper documentation of this service.
[Check out where to find scholarships for educators.]
If you fail to begin qualified service within one year or complete these criteria within that eight-year period, your TEACH Grant becomes an unsubsidized Stafford loan, which needs to be repaid. The bad news, other than you now owe a loan you didn’t have before, is that this loan will also have interest calculated from the date it was originally disbursed. If you consider that this loan is likely at least several years old at this point, that can be a significant amount.
The good news is that, being a federal unsubsidized Stafford loan, it will be eligible for all the lower payment, deferment and other benefits and protections available for other unsubsidized Stafford loans. That also means that if you choose not to repay it as agreed, all the same consequences will occur.
[Read about three surprising student loan repayment facts.]
It’s not just TEACH grant recipients who have to watch out. You’ll have to repay pretty much any other federal grant, including the Pell Grant, if you fail to meet the eligibility criteria once it’s disbursed. A common problem for Pell recipients is withdrawing soon after having the grant disbursed to them for living expenses.
What these students may not realize is that Pell Grants, like most federal financial aid, are earned over time, and if they don’t complete the time, they are required to return the funds. Unlike the TEACH grant, these funds must be returned right away. In fact, the student won’t be able to receive any more aid until they do so.
The bottom line is, when they say “nothing in life is free,” they could be talking about your grant money. Make sure you know before you owe.
More from U.S. News
A Timeline of Federal Student Loan Delinquency, Default Consequences
Avoid These Student Loan Challenges for Community College Students
Income-Driven Student Loan Repayment Plans Can Cost More
Make Sure Your TEACH Grant Doesn’t Become a Loan originally appeared on usnews.com
