Do you have to pay taxes on a scholarship? It depends what the scholarship is for. To understand taxes on scholarships, it’s worth remembering that the IRS defines qualified expenses differently for different purposes. Expenses get more or less the same treatment for taxability of scholarships as they do for education tax credits, so let’s review those.
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Need-based Aid
As conditioned as we are to thinking about college as a seller’s market where schools have all the leverage, the NACAC College Openings Update, published every May, serves as a reminder that for the majority of schools, students are in the driver’s seat.
Every year, about 1/3 of FAFSAs filed are selected for validation, which could be described as FAFSA’s version of an audit. Some FAFSAs are chosen at random for verification, whereas some schools– especially those funding need-based aid out of an endowment– will verify every application. Because verification goes through the school, it’s not unusual for students to first learn about…
Students who are waitlisted at their top-choice school should understand how waitlists work, because they can a little bit like Lloyd in Dumb and Dumber: “So you’re telling me there’s a chance!” Here is a great article explaining how waitlists work. The key takeaway from a money perspective: Waitlists tend to be “need-aware” so waitlisted students who require financial aid to…
If you’ve never heard of the Coalition App, count yourself among the many. The Coalition App is similar to the Common App in many respects, including allowing students to create a single application for multiple colleges, but it has some key differences. First and foremost is that the Coalition Application was created by the Coalition for College Access, a group of…