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College students in the US must report their income on a variety of documents, from their tax returns or next year’s financial aid applications to those they use to rent an apartment or apply for a credit card. Whether or not to include your student loan, which is financial aid for your education, as income depends on the context and the policies of the organization requesting the information.
About loan repayments
When you get a student loan in the United States, the lender sends the money to your college and the financial aid office applies it to your school account. If there is money left over after you have paid your tuition, fees, and any other room and board costs paid through the school, you will receive the rest of the money in a check made out to you.
Financial aid and tax return
You are not required to report this federal financial aid on your tax return. Because the money is borrowed, not earned, it does not count as income. On the other hand, if you obtain a scholarship or grant proceeds that you use for purposes other than tuition, fees, and required course materials, you must report it as taxable income. This is because the grant is money given to you, not money you borrow.
Active in the Free Application for Federal Student Aid
When you complete the Free Application for Federal Student Aid (FAFSA) as part of next year’s financial aid application process, you do not have to report the student loan as income. This is because you didn’t have to include it as income on your tax return, and the FAFSA uses your tax information, so it already knows. However, if you deposited the student loan proceeds into your bank account, you must report it as an asset on the FAFSA.
Tax Status of Loan Forgiveness
When the federal government’s Public Service Loan Forgiveness program went live, it left some loan seekers wondering about the tax status of those funds. Since then, the Internal Revenue Service (IRS) has cleared up doubts and stated that those forgiven amounts are not considered income to debtors and do not need to appear on their tax returns as income on their bank statements. There are several other loan forgiveness programs that may or may not follow these same rules. A good idea is to go to the IRS website to review your specific loan forgiveness program and, also using the help of the FAQ section, see if you are eligible.
Many applications ask, in their main content, that you list your income as proof of your eligibility, that is, that you can afford to pay a debt or make a monthly payment. Whether or not you should include your student loan depends on the company’s policies. You can most likely list the financial aid you receive as income when you want to rent housing off campus and the landlord needs to know how much money you make. Many landlords will accept student loan funds as sufficient income to make rent payments.
In most cases, loan and credit card holders will not allow you to list these types of financial aid to count as income. In these cases, you must have income from work to show that you have no financial need in order to borrow money. However, you can ask, and if you are able to provide sufficient and convincing documentation, the creditor may accept funds from some types of financial assistance as evidence of your ability to pay a debt.
What about the scholarships?
Part of your financial aid package might contain a Pell Grant or similar grant to help you pay for your higher education expenses. These scholarships are handled similar to loans. If there is any amount that is not specifically earmarked for education expenses already designated, that amount must be reported as income.