As a college student, your income can be an important factor in many situations. A couple of examples: Credit card companies will consider your earnings if you apply for a new card, and the U.S. Department of Education will look at what you make once you complete your Free Application for Federal Student Aid (FAFSA).
Since your income is a factor on the FAFSA, you may be wondering as you receive federal student aid to help you pay for school, do student loans count as income for tax purposes? The short answer is no, and here’s why.
Do Student Loans Count as Income for Taxes?
You don’t need to worry about paying income taxes on the student loans you receive in school because it’s a debt, not a source of income. There are, however, some instances where taxes can come into play with your student loans.
For starters, once you begin repaying your federal student loans upon leaving school, the IRS lets you deduct up to $2,500 in annual interest you’ve paid on your loans when filing your taxes. Up until recently, certain types of student loan forgiveness were taxable. For example, if you opt for an income-driven repayment plan, your repayment term will be extended to 20 or 25 years, depending on the plan. At the end of that period, any remaining balance will be forgiven. And because income-driven repayment plans don’t require you to work in a qualifying role to be eligible, as with the Public Service Loan Forgiveness (PSLF) program and Teacher Loan Forgiveness program, discharged debt was considered taxable income.
With the passage of the American Rescue Plan, however, all forms of federal student loan forgiveness are temporarily excluded as income on your tax return. There’s one caveat, though: This provision expires on Jan. 1, 2026. So unless you have a year or so left on your income-driven repayment plan, you won’t be able to access this benefit. But in the unlikely scenario that it’s extended under a second-term Trump presidency, you may be able to take advantage of it in the future.
Are Student Loans Considered Income for Other Purposes?
Student loans aren’t counted as income for one simple reason: they’re a debt you must repay. By contrast, money earned from a part-time job, side business, or interest on your bank account is considered income.
So if you’re applying for a student credit card or completing your FAFSA for the upcoming school year, know that student loans aren’t considered income. This is especially important to understand if you’re applying for a credit card or loan because if you inflate your income on a loan application, it could be considered fraud.
What About Other Forms of Financial Aid?
In many cases, college students get more than just student loans as financial aid — they might get scholarships, grants, fellowships, or work-study opportunities too. If you’re also receiving any of the above, you may wonder if they count as income. With some of these types of financial aid, it may not be as straightforward.
For instance, if you’re in a work-study program, it’s essentially like working a regular part-time job, so any income you receive from that program is taxable. On the flip side, scholarships and fellowships may or may not be taxable, depending on the situation.
In most cases, scholarship and fellowship money isn’t taxable if you’re a candidate for a degree at an eligible educational institution and you use the funds to cover the costs of tuition, fees, books and supplies. But if your scholarship or fellowship funds are earmarked for other purposes, such as room and board, travel, research and nonmandatory equipment and supplies, those funds could be taxed as income. Additionally, if a scholarship or fellowship has a service requirement attached — for example, you must work as a research assistant to qualify — it will likely be taxable because the money you receive is essentially payment for your service.
The Bottom Line
Do student loans count as income for taxes or other purposes? No, you’ll never have to worry about reporting your student loan funds as income on your tax return, loan applications, or anywhere else. This is because student loans aren’t considered income, but debt.
However, other forms of financial aid you get may be considered income and could be taxable, so it’s important to check with your financial aid office to determine how to handle your financial aid. In a work-study program, the employer may withhold federal and state income taxes from your paychecks, so you don’t have to worry about a big tax bill at the end of the year. But if you’re receiving a taxable scholarship or fellowship, you may want to set aside some money for tax purposes. As with any tax-related situation, it’s wise to consult with a tax professional to get the personalized guidance you need.
