Your financial aid package will most likely have a mix of financial award types, such as grants, scholarships, and loans. Each of these awards will have separate tax consequences and are treated differently on your federal tax return. Federal student loans are not considered taxable income.
Not Taxable Income
Though it may seem as though you should claim your student loan as “income,” since you are receiving money, you are not receiving money - you are borrowing it. The money that you receive from student loans is not yours, it is money that you will have to pay back with interest!
There are two education credits currently available to help offset the costs of a higher education by reducing the amount of your income tax. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself.
These credits are available if you are paying your education costs yourself or your parents are paying these costs for you as their dependent. Only one of you can claim the credit.
Note: To Claim Either of these Credits you will have to complete IRS Form 8863
American Opportunity Credit
Tax Benefit -
Lifetime Opportunity Credit
Tax Benefit -
Please refer to IRS Publication 970 - Tax Benefits for Education for more information
- TurboTax: How to Report FAFSA College Money on a Federal Tax Return
- IRS: Publication 970 (2017), Tax Benefits for Education
- IRS: Topic Number 421 - Scholarships, Fellowship Grants, and Other Grants
- IRS: Publication 17 (2017), Your Federal Income Tax
- IRS: Tax Benefits for Education
- ScholarshipHunter: Tax Advice: Is Financial Aid Considered Income?
- TurboTax: Do You Have to Claim Pell Grant Money on Your Taxes?
- IRS: Topic Number 431 – Canceled Debt – Is It Taxable or Not?
- Student Loan Hero: Are Student Loans Considered Taxable Income?
- Nolo: Tax Filing Status and Student Loan Payments
Kimberley McGee is an award-winning journalist with 20+ years of experience writing about education, jobs, business trends and more for The New York Times, Las Vegas Review-Journal, Today’s Parent and other publications. She graduated with a B.A. in Journalism from UNLV. Her full bio and clips can be seen at www.vegaswriter.com.