How Does an Inheritance Affect a Pell Grant?
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Introduction
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The Federal Pell Grant Program, named for U.S. Senator Claiborne Pell, offers money to low-income students for college tuition. The strictly need-based grant can be used to attend any of approximately 5,400 participating institutions and does not need to be paid back. Probably for this reason, Pell Grants are the most sought after form of student financial aid in the United States. In 2007, the program was expanded to offer a maximum of $4,600 per year, and will further extend to $5,400 annually by 2012. The amount of money particular students are eligible to receive depends on the expected contribution of their family, the cost of the school, and their enrollment status.
Direct Affects
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An inheritance can directly affect a student's Pell Grant eligibility in two ways. First, if the parents receive the inheritance, this can alter the amount of the expected family contribution (EFC). Since the student's financial need is calculated by subtracting the parent's contribution from the cost of the attending school, a higher expected parent contribution will directly lower the student's need. This will, in turn, be likely to reduce the amount of money awarded through the Pell Grant.
Second, if the student receives the inheritance, it could affect their status as low-income and alter their eligibility for a grant. The financial need of an independent student is based on their previous year's tax return. Students who were eligible to file Form 1040A or 1040EZ, or who were not required to file income taxes at all, usually qualify as low-income, particularly if they have non-spouse dependents. Receiving an inheritance in the year prior to applying for a Pell Grant, however, may affect the individual's tax status and limit eligibility.
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Other Considerations
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The source of almost all information used to determine a student's need and eligibility for all types of financial aid is the Free Application for Federal Student Aid (FAFSA). Among the stipulations of the official application is that the student will notify the Financial Aid Office of any changes in "financial, housing, enrollment, marital or academic status, and/or any additional earnings or support" from any source. This legally obligates the student to report an inheritance received after a Pell Grant has been awarded, and may affect future payments of the grant. Some schools, however, allow a student to petition that the inheritance be disregarded for purposes of calculating financial need.
Another important factor to consider is the form of the inheritance. The FAFSA only requires that inheritances of money be reported as income and specifically stipulates gifts other than money need not reported. If the inheritance, then, comes in the form of stock, real estate, or other property it might be exempt from consideration and might not effect a Pell Grant award at all.
Finally, students must submit an updated FAFSA for every year they wish to receive federal financial aid. Because inheritances tend to be received as one-time payments, a student who loses some Pell Grant eligibility in one year may be eligible to receive it again the following year. Inheritances in the form of trust funds that make regular payments will probably have more serious impact, though, on a student's eligibility for need-based federal financial aid.
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