Does a Financial Aid Loan Refund Count as Income?

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College students need to report their income on a variety of documentation, from their tax returns to applications for next year's financial aid, an apartment rental or a credit card. Whether or not you include your student loan proceeds as income depends on the context and the policies of the organization that is asking for the information.

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Consider Also:Who Must File Income Taxes?

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About Loan Refunds

When you get a student loan, the lender sends the money to your college and the financial aid office applies it to your bill at the school. If there is money left after you have paid your tuition, fees and any room and board you pay through the school, you get the rest of the money as a check written out to you.

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You do not need to list your student loan refund anywhere on your tax return. Because the money is borrowed, not earned, it is not income.

You can use this money, which is still all borrowed funds, for other expenses related to your education. Many students borrow money to pay for books, supplies, off-campus housing and food, transportation and personal expenses.

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Tax Return Reporting

You do not need to list your student loan refund anywhere on your tax return. Because the money is borrowed, not earned, it is not income. On the other hand, if you get a refund for a scholarship or grant that you use for purposes other than tuition, fees and required course materials, you must report this as taxable income. This is because the grant is money that is given to you, not money that you borrow.

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Consider Also​: What Happens if You Don't File Taxes?

Assets on the FAFSA

When you fill out the Free Application for Federal Student Aid as part of the application process for financial aid in the coming year, you do not have to report the student loan as income. This is because you did not have to include it as income on your tax return and the FAFSA uses your tax return information. However, if you deposited the student loan refund into your bank account, you do need to report it as an asset on the FAFSA.

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Loan Forgiveness Tax Status

When the Public Service Loan Forgiveness program was put in place by the government, it left some borrowers wondering about the tax status of those funds. The IRS has since clarified and declared that those forgiven amounts are not considered income for those borrowers and do not need to be listed on their taxes as income. There are several other programs for loan forgiveness that may or may not follow these same rules. Be sure to go to the IRS website to check on your specific loan forgiveness program.

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Applications for Credit

Many applications require you to list your income as proof that you can afford to pay a debt or a monthly payment. Whether or not you can include your student loan refund depends on the company's policies. A situation where you are most likely able to list your loan as income is when you are getting off-campus housing and the landlord needs to know how much money you make. Many landlords will accept student loan refunds as sufficient income to make your rent payments.

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In most cases, creditors for loans and credit cards will not allow you to list borrowed funds as income. In these cases, you must have income from work to be able to borrow money. However, you can still ask, and if you can provide sufficient documentation, the creditor might accept loan funds as your ability to pay on a debt.

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What About Grants?

Part of your financial aid package could contain a Pell Grant or another such grant to contribute towards your cost of education. These grants are treated similarly to loans. If there is any amount that does not go to designated education expenses, that amount will need to be shown as income.

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