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How Do I Report Student Loan Money on My Taxes?

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Student loans are the lifeblood of the American system of higher education. Without a robust network of public and private lenders, millions of current college students would be unable to afford to finance their educational endeavors. Without a robust supply of bright graduates to fill entry-level government and corporate positions, the country would become less and less competitive on the global stage. Over time, this would have serious implications for the global balance of power and could reduce the relatively high standards of living that most Americans currently enjoy.

If you're currently receiving student loans to finance your education, you're probably wondering how to report these funds on your annual income tax return. After all, you probably receive several thousand dollars in loans over the course of each tax year. If you receive instruction at an expensive private institution, you may accrue annual loan disbursements in excess of $20,000. Although there is an upper limit to the dollar amount of the federally-backed loans to which you're entitled, you're free to take out as many private student loans as you wish.

Regardless of the size of your disbursements, you may not be required to report your student loan funds as taxable income. Before you file your taxes, you'll need to look over the "fine print" on each of your loans. Many of your loans may be earmarked for specific expenses like tuition, fees or housing costs. If your lender directly compensated your educational institution for any of these expenses, you'll almost certainly be able to avoid claiming this "income" on your tax return.

The reason for this is simple: Since you were prohibited from using the money for discretionary expenses, the IRS can't argue that you received it as income. Even if you received your loan funds in a personal account, you may be able to avoid claiming them as taxable income. You can safely ignore any "restricted" funds that must be used for textbooks or other school supplies. In order to leave these funds off of your tax return, you'll need to remain enrolled in school.

On the other hand, you must claim any stipends that you receive in lieu of regular salary payments. Although some stipends are technically loans designed to cover discretionary expenses, their use is not typically controlled by the terms of the loans to which they're attached. As such, they count as regular income. Likewise, graduate-level stipends that don't come attached to any student loans must be reported as regular income.


This article contains general legal information but does not constitute professional legal advice for your particular situation. The Law Dictionary is not a law firm, and this page does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

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