TEACH Grant Conversion to Loan

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. This loan program in parallel to the Federal Stafford Unsubsidized Loan program that is offered at UC.

Whereas the Federal Stafford Loan (subsidized or unsubsidized) uses loan funds from a lender and is serviced by a guaranty agency, the Direct Loan program utilizes the U.S. Treasury Department as the lender and the U.S. Department of Education as the servicer. It is being offered directly by the U.S. government. But 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.

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.