TEACH Grant Conversion to Loan

While the TEACH Grant Program was originally funded at annual $4,000 awards, the federal budget sequester that went into effect on March 1, 2013, has adjusted the amounts that could be awarded students within subsequent timeframes. All other provisions of the program remained the same.

Instead of $4,000 annual amounts, awards first disbursed during these timeframes were reduced accordingly:
  - 10/01/2016 - 09/30/2017: $3,724 reflecting a 6.9% cut.
  - 10/01/2015 - 09/30/2016: $3,728 reflecting a 6.8% cut.*
  - 10/01/2014 - 09/30/2015: $3,708 reflecting a 7.3% cut.
  - 10/01/2013 - 09/30/2014: $3,964 reflecting a .89% cut.
  - 03/01/2013 - 09/30/2013: $3,712 reflecting a 7.2% cut.

Congressional action on the annual federal budget (hence the October 1 effective dates now) will continues to determine any other cuts or restoration to the program.

*Though not a substantial difference, some students may wish to delay requesting TEACH awards until after October 1 in order to receive the increased amount when there are increases in funding. Tuition bills remain due as scheduled to avoid late fees.

Failure to complete the teaching obligation, respond to requests for information, or properly document your teaching service will cause your TEACH Grant to be permanently converted to a loan with interest. Once a grant is converted to a loan, it cannot be converted back to a grant.

Additionally, students who change majors from a TEACH-eligible program are likely not to be able to meet the teaching obligation.

Federal Direct Unsubsidized Loan

TEACH Grants that become a loan become part of the Federal Direct Unsubsidized Loan program. Like any educational loan, it will add to your overall debt and monthly payments.

Interest Calculation

Unsubsidized loans are not interest-free while the student is enrolled in college. They are earning interest that a student can pay while enrolled or it will capitalize into the principal, resulting in some interest-on-interest accumulation.

Conversion of TEACH Grant funds to a loan is retroactive to the disbursement of monies. Therefore, at any point the funds are converted to a loan, interest will be calculated back to the point each payment of TEACH Grant funds were given to the student. The result is a much larger total loan amount repaid than the grant funding itself.

To illustrate, assume a student receives $4,000 in TEACH Grant funding for four years, totaling $16,000 in grant monies. Remember, if the teaching service obligation is not met, the grant in its entirety is converted to a loan. There is no proration for having met part of your teaching obligation. Federal regulations for this program and your signed Agreement to Serve detail an all-or-nothing approach to completing the service to avoid loan conversion.

The following chart shows how the loan conversion would operationalize assuming the original $16,000 grant converted to a 6.8% loan repaid over the standard 10-year loan period.

Point of Conversion in Years after First TEACH Disbursement Accrued Interest Added at Point of Conversion to Loan Approximate Monthly Payment Total Amount Repaid on $16,000 Grant 
4
(approx. at graduation)
$2,448 $212 $25,476
6 $4,624 $237 $28,481
9
(approx. at end of standard 8-year requirement limit)
$7,888 $275 $32,989
12 $11,152 $312 $37,496

This chart only refers to the TEACH Grant converted to a loan. Any monthly payment and total amount repaid would be in addition to any other loan borrowing a student may have done while enrolled in college.

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The TEACH Grant is a great opportunity for a future teacher to gain additional grant money for college. However, accepting a TEACH Grant should not be done without thought and planning.

Students of specific majors obviously need to carefully consider their desire to work in a low-income setting or in a high-need subject area.

Additionally, students accepting the TEACH Grant are encouraged to limit accepting loans or even cancelling previously accepted student loans.

Reducing reliance on loans while in college is always good practice. By doing so, you automatically reduce what could be your debt upon graduation. As well, if your plans to meet the TEACH Grant service obligation do not work out, your TEACH-converted-to-loan debt plus your other educational loan debt will not be an overwhelming financial burden.