Only certain forms of college student financial aid count as income – depending on the type of application you are attempting to complete.
Financial aid can include student loans, grants, scholarships, stipends, and work-study programs.
Meanwhile, you might have questions about what to declare for earnings when completing applications for credit cards, Medicaid, private health insurance, Food Stamps, rental apartments, Section 8, or when filling out your tax return.
The left-over amounts that land in your checking account can help or hurt your cause depending on the program in question. Follow the outline for answers.
Financial Aid and Credit Cards
According to the Bureau of Consumer Financial Protection (BCFP), portions of financial aid can count as income for student credit cards. Their final rule amending Regulation Z clarifies that banks can classify student loans as income, provided they only consider the portion remaining after the college refunds the balance after covering its billed expenses.[i]
The issuing banks are quick to tout using financial aid money to make payments so you can cash in on alluring rewards. However, they do not make it clear that these funds substitute for income on their application.
What to Put
Given the above, it could be confusing to know what to put down for income on student credit card applications. Some banks provide vague guidance right on the web form, while others offer no clues whatsoever. For example, Discover has this to say on the matter.[ii]
- Income means wages, salary, or tips, you currently earn or can reasonably expect to earn. Other examples include part-time or full-time work, internships and summer jobs.
- If you are 21 or older, you may include another person’s income that is available to you.
- If you are under 21, you may consider the amount of another person’s income that is regularly deposited into your account.
Notice that this guidance does not explicitly state student loans, grants, scholarships, or stipends – but does mention a mysterious “another person” whose income is available to you or deposits regularly into your account.
The CBFP ruling, combined with this undefined another person, seemingly gives you the latitude to declare your excess funding as income. Just be careful not to exaggerate your ability to repay any balance.
Keep in mind how banks determine the income requirements for student credit cards. You must show enough steady cash flow to support at least the projected minimum monthly payment.
The bank will use your reported income and risk score to establish the credit limit. The limit is the maximum balance you can charge to the account.
The account limit then determines the high-water mark of your minimum monthly payment. For example, an account with a $500 limit and balance might have a minimum amount due of $25 (3% to 5% of the obligation).
In other words, students with only modest incomes from part-time summer jobs can qualify for a credit card with a small limit, and tiny minimum payment.
Student Loans & Medicaid
Student loans do not count as income for Medicaid. However, any refunds that you deposit into a checking or savings account could affect your eligibility depending on the rules in your home state – and your reason for seeking this form of government assistance.
As a government-sponsored welfare program, only a minority of full-time college students can qualify for Medicaid. You must fit into at least one narrowly defined category and meet state income limits to be eligible.[iii]
- Not listed as a dependent on your parent’s tax return
- Parent of at least one child dependent on you for support
- Disabled and receiving SSDI or SSI benefits
Full-time students who meet these criteria must also be careful about loan refunds from their college, as the money could trip asset limits.
Any student loan refunds from your college could affect Medicaid eligibility if the money held in your bank account exceeds the asset limits. A school might issue you a refund if you borrowed above the cost of education to fund meals, transportation, or off-campus housing.
Each state and Medicaid program has unique rules for asset limits. For example, you might need to spend down resources by retiring debt to qualify. However, this rule does not apply evenly across the country.
You will need to do some homework on this point with your local county agency.
Student loans do not count as income when applying for health insurance in the private marketplace. Plus, excess funding deposited in a bank account does not affect eligibility for subsidies.
Two types of subsidies make it more affordable to purchase (premiums) and utilize (cost-sharing) private healthcare plans for people who do not qualify for Medicaid.
Your household income (but not countable resources) determines eligibility for the two subsidies.
- Wages and salary from work
- Social security benefits (disability and retirement)
- Unemployment compensation
Keep in mind that the size of your financial aid package could take account of the premiums for health insurance. Your college will submit an estimated cost of attendance to the Department of Education, which includes paying for healthcare.
Financial Aid & Food Stamps
As with other government-based welfare plans, most full-time students do not qualify for food stamps. The Supplemental Nutrition Assistance Program (SNAP) has strict criteria that rule out most college attendees taking a full course load.[iv]
- Get public assistance benefits under a Title IV-A
- Take part in state or federally financed work-study
- Work at least 20 hours a week
- Taking care of a dependent household member under the age of 6
- Care for a child under the age of 12 without adequate childcare
As with Medicaid, student loan refunds could affect food stamp eligibility. If you meet the strict criteria noted above, you could still run afoul of the resource limits if the money in your bank account rises too high. You could get a refund to finance off-campus housing, travel, and other related expenses.
Food stamp rules set countable resource limits of $2,250 for most applicants, and $3,250 for those aged 60 or older, or the disabled. However, specific recipient groups do not have resource limits.
- Supplemental Security Income (SSI)
- Temporary Assistance to Needy Families (TANF)
Since college students must complete the (FAFSA®) form every year, it is reasonable to ask if receiving food stamps affects future financial aid. It would be a shame to gain a small government welfare benefit in year one, only to lose a much larger grant or needs-based scholarship in year two and beyond.
The FAFSA form clearly states (questions 75 through 79) that enrollment in any of the following welfare programs does not affect financial aid eligibility[v].
- Medicaid or Supplemental Security Income (SSI)
- Supplemental Nutrition Assistance Program (SNAP or Food Stamps)
- Free or Reduced Price School Lunch
- Temporary Assistance for Needy Families (TANF)
- Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
Student Loans & Rental Applications
It is impossible to determine if student loans count as income for rental applications because independent property owners set their own rules – including use of credit reports. However, a refund from your school can act as a viable substitute for off-campus apartment housing and does not disqualify you from Section 8 subsidies.
Most schools include housing expenses in their average cost of attendance calculation. You can borrow up to this average figure every year through a combination of federal and private loans – if qualified.
Many off-campus apartment landlords will not classify your student loan proceeds as income on their rental application. However, they will recognize the balance in your bank account after the school processes the refund as a resource suitable for making the monthly lease payment.
Expect the property owner to have a third party (parent) to cosign the lease agreement, or act as a guarantor. A one-year rental contract could require a second or third loan approval in the future – which is not assured.
Only the work-study portion of student financial aid counts as income for Section 8 subsidies. The Housing Choice Voucher Program (Section 8) assists very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary apartments and townhomes.[vi]
However, unlike other rental applications, college attendees want to show lower earnings and assets to qualify for the subsidy.
Refunds from student loan proceeds should not be an issue, because the Section 8 rules do not consider countable assets. However, your local Public Housing Agency (PHA) will include the income reported on the W2 statement issued by your school for a work-study program.
Financial Aid & Federal Taxes
Specific forms of college student financial aid count as income on your federal tax return, while others do not. The IRS treats the four primary kinds of monetary assistance differently.[vii] Plus, the rules can change after graduation.
- Work-study programs
The IRS does not consider student loan proceeds or refunds as income on your tax return in the year that your college receives the funding. Money that you must pay back in the future is debt.
However, student loans could affect your taxes after you graduate and enter the repayment phase.
- Line 33 on Form 1040 allows you to deduct interest charges to reduce your adjusted gross income for the year
- Forgiven balances in the form of loan discharges for closed schools, death, disability, false certifications, and unpaid refunds increase reportable income
Grants & Scholarships
The IRS does consider certain portions of college grants and scholarships as taxable income that you need to declare on Form 1040 in April of the following year. The IRS classifies the aid used to fund room and board and other expenses not related to coursework as earnings.
However, you do not have to declare grants and scholarships used to finance tuition, laboratory fees, textbooks, and other associated education expenses as income.
The IRS considers college work-study programs as taxable income to be reported on Form 1040. The school issues a W2 statement in January of each year.
Copies of the W2 statement goes to both the IRS and the student and includes wages, tips, and other compensation along with money withheld for federal income, Social Security, and Medicare taxes.