Tax Advice: Is Financial Aid Considered Income?

Q: Are student loans considered income? Do I need to report my student aid as income to the IRS? Is any of my financial aid for college taxable?

A: It is possible that some of your grant and/or scholarship based financial aid is considered taxable income.

The way the IRS looks at it, only money used toward tuition, fees, books, supplies and equipment required for your courses is considered non-taxable.

Any grant or scholarship money used for other purposes (like housing, for example) is considered taxable and needs to be reported.

Calculate the portion of your financial aid to be included in your taxable income by adding up your total grant aid and subtracting out the cost of tuition, fees, books, supplies and equipment required for your courses of instruction.

According to IRS Publication 970, a scholarship or fellowship is tax free if you are a candidate for a degree at an eligible educational institution, and you use the scholarship or fellowship to pay qualified education expenses.

For purposes of tax-free scholarships and fellowships, these are expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution.

(To be considered tax-free, these items must be required of all students in your course of instruction.)

However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.

Qualified education expenses do not include the cost of room and board, travel, research, clerical help, or equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

Student Loans
Funds from student loans are not considered taxable income and should not be included as income on your income tax return. A student loan is not income because you must repay the amount borrowed plus interest. However, if any of your student loan debt is forgiven, the amount forgiven would be income in that year. Some students have student loan debt forgiven for teaching or participating in other forms of public service.

For more information about taxable financial aid grants, along with other information about income tax obligations and benefits for students, go to the IRS Student Web Site: