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Do Student Loans Count As Income?

Do Student Loans Count as Income?
Rebecca Safier
Rebecca SafierUpdated August 31, 2023
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If you’re relying on student loans to pay for college or graduate school, you may be wondering whether or not student loans count as income. The answer to that question is no, student loans are not considered income. Since you’ll be paying your loans back (with interest), you don’t have to worry about paying taxes on the amount. In fact, you may qualify for a tax deduction if you’re paying student loan interest during the year. That said, there are some types of financial aid that count as taxable income, so it’s important to understand how your financial aid can impact your tax bill. Read on for a closer look at the tax implications of financial aid, including grants, scholarships, and student loan forgiveness. 

The Nature of Student Loans: What They Are Classified As

Student loans are classified as loans that you’ll have to pay back with interest. As a result, they’re not considered to be income, so you don’t have to pay taxes on them. Along similar lines, the IRS doesn’t consider a personal loan, car loan, or mortgage to count as taxable income. All of these forms of financing are loans that you’ll have to pay back, so you don’t have to additionally pay taxes on the amount you receive. You can use student loans to pay for any education-related expenses, including tuition, fees, room and board, and supplies. Both federal and private student loans are available to students and usually don’t require repayment until you’ve graduated, dropped below half-time enrollment, or withdrawn from school. 

Clarifying Whether Financial Aid Counts As Income

While student loans don’t count as income, other forms of financial aid may be taxable. Here are some other types of financial aid that have important tax implications to consider. 

Scholarships and Grants

Unlike loans, scholarships and grants offer money for college that you don’t have to pay back. You might assume that you don’t have to pay taxes on scholarship or grant awards, but that’s not always the case. To exclude your grants and scholarships from your taxable income, you must use the funds on qualifying expenses. These include tuition, fees, books, equipment, and supplies. Note, however, that the list does not include room and board or travel. If you use your scholarship or grant on room and board (or anything other than tuition, fees, books, and supplies), then that amount will be treated as taxable income. Let’s say, for instance, that you get a $10,000 grant and spend $8,000 on tuition and the remaining $2,000 on rent. The $8,000 is not considered taxable income, but the $2,000 does count as taxable income. 


The work-study program provides part-time jobs to students with demonstrated financial need. You’ll earn at least minimum wage through a work-study job and can often find a position related to your course of study. Since you’ll be earning income if you participate in this program, you’re expected to report it on your taxes. You’ll get a W-2 form from your employer and report that income on your income tax return. Depending on the amount you earn and your tax bracket, though, you may not have to pay much (or any) taxes on the amount you earn through your work-study job. 

Employer Tuition or Student Loan Assistance

Some employers offer tuition or student loan repayment assistance benefits to their employees. You can exclude up to $5,250 of the employer benefit from your taxable income each year. If your employer offers more than $5,250 in a year, the additional amount will be treated as taxable income. Your employer should report any taxable portion of this assistance benefit on your W-2 form. 

Tax Considerations for Student Loans

While some forms of financial aid have tax strings attached, student loans are never considered taxable income. In fact, you may qualify for a deduction on your taxes if you’re paying back student loans. Specifically, the student loan interest deduction lets you exclude up to $2,500 from your taxable income. The deduction starts to phase out at higher income levels and disappears completely if your modified adjusted gross income (MAGI) is higher than $85,000 as an individual or $175,000 if married and filing jointly. You can claim this deduction if you paid $600 or more in student loan interest throughout the year. This means you’ll need to be actively paying back your student loans to qualify for the student loan interest deduction. If you’re wondering how the deduction applies to your finances, it may be worth speaking with a tax professional about your specific situation. 

The Impact of Student Loan Forgiveness on Taxation

There are a variety of student loan forgiveness programs that can forgive part or all of your student loans. Whether or not the forgiveness you receive is treated as taxable income depends on the program. Forgiveness from the Public Service Loan Forgiveness (PSLF) program, for example, is not taxed. However, forgiveness that you can get after 20 or 25 years on an income-driven repayment plan usually is. That said, the American Rescue Plan waived taxes on federal student loan forgiveness through 2025. Anyone getting their loans forgiven from an income-driven repayment plan or other federal program won’t have to worry about paying federal taxes on the amount. State tax rules can vary from state to state, though, so you may still need to pay state taxes on forgiven student loans depending on where you live. Check your state’s particular tax rules to see what taxes you’ll have to pay, if any, on student loan forgiveness or assistance you receive. Recommended: How Refinancing Student Loans Affects Your Taxes

Common Misconceptions

When you receive student loan money to pay for school and living expenses, it might feel like you’re receiving an income. This is a misconception, however. Since student loans are debt that you have to pay back, they’re not considered taxable income. You will have to pay interest and any associated fees on your loan balance, but you don’t have to worry about paying income taxes on the amount you borrow for school. 

The Takeaway

Student loans are a form of debt, not income. Because of this, you don’t have to worry about paying taxes on the amount you borrow. You may even be able to qualify for a tax deduction if you pay student loan interest throughout the year. Student loans can still be a financial burden, though, especially if you have high interest rates. Refinancing your student loans may be able to help ease the burden. Before refinancing federal student loans, however, make sure you understand how student loan refinancing works and are comfortable giving up federal repayment plans and other protections. Refinancing federal loans means replacing them with a private loan, which won’t be eligible for federal income-driven repayment, forgiveness, or other benefits.If you decide refinancing is right for you, Lantern can help you compare student loan refinancing rates. 

Frequently Asked Questions

Are student loans considered income?
Is financial aid considered income?
Are student loans considered income for credit card applications?
Do student loans count as income for dependents?
Photo credit: iStock/skynesher

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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