Tax and student loans?

How do student loans affect tax returns?

• I am considering getting student loans for the next 2 1/2 years. I am currently getting FAFSA, but that barely covers tuition. Will a loan affect how much I can get from FAFSA? I have also been told that I have to claim the loans on my tax returns. Is this true, and if so, do I actually have to pay taxes on the loans? I was assuming that, since you have to pay the loan back, it wouldn't count as income. Is there anything else I should know before applying that would affect my taxes? I would appreciate help from anyone has gotten a student loan or that knows about taxes. Thanks!!!

• Answer:

  First, you don't receive financial aid from FAFSA. The FAFSA (Free Application for Federal Student Aid) is a form that is completed which generates an EFC (Expected Family Contribution). Schools use the EFC in conjunction with the COA (Cost of Attendance) to determine a student's financial aid package. A student loan is financial aid, so there is no claiming of it on your tax return. It does not count as income. Here is some other information regarding financial aid and taxes from the IRS website: **************************************… 4.8 Interest/Dividends/Other Types of Income: Grants, Scholarships, Student Loans, Work Study I received an academic scholarship that is designated to be used for tuition and books. Is this taxable? Qualified scholarships and fellowships are treated as tax-free amounts if all of the following conditions are met: You are a candidate for a degree at an educational institution, Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction, and The amounts received are not a payment for your services. For additional information on Scholarship and Fellowship Grants, refer to Tax Topic 421, and Publication 970, Tax Benefits for Education. **************************************… You should talk to a financial aid officer at your school for further information/guidance. Good luck!