How do (up to "full ride") scholarships work with grants?

Paying for College
1

<p>Hi,</p>

<p>We are in process of trying to figure out how college is going to work for our oldest DD (now a HS senior).</p>

<p>The particulars:</p>

<p>She has a 4.0 unweighted, and about a 4.56 weighted GPA, and good scores on SAT and ACT.</p>

<p>She has progressed to National Merit Semifinalist and is expected to proceed to Finalist status.</p>

<p>We have lots of kids (she's the oldest of a large family) are flat broke. As in, we just got caught up on the rent, no chance of owning our own home, barely keeping our two ancient vehicles on the road broke. This has been our life now for many years. I expect our EFC to be zero (but am worried about how her getting scholarships affects that).</p>

<p>Our choices for university are between:</p>

<ul>
<li><p>The "regular" state university which is a decent school and located in town. (Scholarship potential: Pretty much guaranteed to get within $1,200 per year of full tuition; tuition plus room and board probably likely.)</p></li>
<li><p>A small, private university (generally considered a bit "better" than the state university), also located in town. (Scholarship potential: Full tuition scholarship probably likely, full tuition plus room and board seems unlikely.)</p></li>
<li><p>Something like University of Alabama, which is off in another state. (Scholarship potential: pretty much of a full ride almost guaranteed.)</p></li>
<li><p>Washington University in St. Louis (in-state but away from home) (Scholarship potential: it seems doubtful to me that she could get anything approaching a full ride.)</p></li>
<li><p>And I suppose she could still apply to one or more of the Ivy League type universities. (Scholarship/ grant potential: not sure.)</p></li>
</ul>

<p>So... digging a bit deeper... U of Alabama, being one of the universities that are generous to national merit finalists, offers pretty much a full ride. However, I still count: </p>

<ul>
<li>room and board is taxable income, which means probably $500 a year in income tax.</li>
<li>books and supplies are estimated around $1000 a year.</li>
<li>if we can come up with a car for her somehow (not sure how), gasoline for 4 trips home per year would be around $600.</li>
<li>etc.</li>
</ul>

<p>With all the various expenses, she would still need an extra $3,000 to $4,000 a year or so even if she were to go for the U of Alabama's generous scholarship. </p>

<p>We have a clear goal to get our kids through college debt-free, and she has worked hard academically to reach the national merit level with that in mind. Even better would be if a combination of scholarships and grants and maybe other sources of income allowed them to get through college a few bucks ahead of where they were when they started. Lord knows we and they need the money.</p>

<p>I am trying to figure out how grants work with scholarships. If you get a good scholarship, does it reduce your ability to get grant money? How does this all work? Does anyone really get their college education paid for, even with a "full ride" scholarship? And any advice on doing this? Thanks.</p>

2

<p>*So… digging a bit deeper… U of Alabama, being one of the universities that are generous to national merit finalists, offers pretty much a full ride. However, I still count:</p>

<ul>
<li>room and board is taxable income, which means probably $500 a year in income tax.</li>
<li>books and supplies are estimated around $1000 a year.</li>
<li>if we can come up with a car for her somehow (not sure how), gasoline for 4 trips home per year would be around $600.</li>
<li>etc.*</li>
</ul>

<p>NO… the income is not added to YOUR income**. It is the child’s income. **My son has the NMF from Bama and he’s never earned enough to pay any tax on his scholarships.</p>

3

<p>I expect our EFC to be zero (but am worried about how her getting scholarships affects that).</p>

<p>Having an EFC of 0 doesn’t negatively affect her getting merit scholarships or grants that help meet need. However, not all schools meet need.</p>

<p>Pell is from the feds. If she qualifies, she gets it.</p>

<p>Find out what your EFC is…it might be higher than 0. EFC doesn’t count debt.</p>

<p>Quick EFC
[FinAid</a> | Calculators | QuickEFC](<a href=“Your Guide for College Financial Aid - Finaid”>Quick EFC - Finaid) </p>

<p>You need to know what your EFC will likely be. Also, CSS Profile will be used at some privates, so you need to know what your institutional family contribution will be.</p>

<p>If you get a good scholarship, does it reduce your ability to get grant money? How does this all work?</p>

<p>If she qualifies for Pell, then she gets it. A good scholarship doesn’t cover what a school calls the “cost of attendance”…so Pell and anything else could still be offered.</p>

<p>If she gets into an ivy or WashU then her need will be met. But, you have to find out what your EFC and CSS family contribution will be. It might be higher than you think.</p>

<p>You need her to apply to financial safety schools just in case the top schools that meet need don’t work out.</p>

<p>What is her school list?</p>

<p>What are her SAT or ACT scores?</p>

4

<p>At “meets full need” schools your daughter will be expected to work during the school year/ over the summer to cover her personal expenses. This situation is doable for most. These schools will compute a family’s need/ EFC using their own formula. Princeton’s for example, is here: [Princeton</a> University | Princeton Financial Aid Estimator](<a href=“http://www.princeton.edu/admission/financialaid/estimator/]Princeton”>http://www.princeton.edu/admission/financialaid/estimator/) </p>

<p>Merit aid will reduce a student’s need before it reduces a family’s EFC.</p>

<p>Greyhound/ Flying/ Amtrak/ finding a ride home with a friend may be cheaper than car + gas + insurance + maintenance.</p>

<p>It is possible to save a lot of money buy buying used textbooks (online).</p>

5

<p>Thanks so much for the reply. Apologies that it’s taken me almost a week to respond. I’ve been totally immersed in trying to figure out a lot of things regarding sending her to college. A zillion details. I’ve reached a lot greater clarity on some, but on some things I’m more confused than ever.</p>

<p>It looks like getting a merit scholarship reduces her chance/ amount of getting a Pell grant… right? It looks to me like if we were to accept a U of Alabama National Merit Finalist scholarship, it would eliminate the possibility of a Pell grant, right? The scholarship covers tuition (but they didn’t mention fees) and housing (but they don’t mention meals), plus a total of $6,000 over 4 years, and a laptop computer.</p>

<p>So we would still have costs of meals, and transportation (including to and from Alabama). And it sounds like there would be no Pell grant to help with that. </p>

<p>Am I understanding this all correctly?</p>

<p>I’m trying to figure out the financial implications of all of our possible options, but it’s very, very confusing.</p>

<p>If I can only figure out the bottom line of how we would come out financially (considering scholarships, grants, tuition, fees, housing, meals, and transportation), then I would be able to better judge the pros and cons of each of our university choices for a financial points of view. Then we could weigh that against other factors like what each school offers in terms of education, distance away from home, etc… :-/</p>

6

<p>“room and board is taxable income, which means probably $500 a year in income tax”</p>

<p>This is actually a good thing in terms of your expenses, because even though the income is included on your daughter’s taxes, you yourself can probably claim a significant tax credit on your return, as the IRS treats the scholarship money that your daughter gets from the university for room and board (which, as mom2collegekids pointed out, she probably won’t even pay much tax for receiving) as taxable income paid by you, the parent. This can lead to get a generous educational tax credit for many parents. Here is last year’s education credits publication to give you an idea of what to expect.</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

7

<p>bthomp, I’m not following you…afaik none of the current tax credits allow R&B to be included as a qualified education expense. My understanding was that only the QTP (aka 529) and student loan interest deduction consider R&B to be a qualified expense, is that right?</p>

<p>

</p>

<p>No, Pell doesn’t work quite like other aid programs as it is an entitlement and is awarded first, before any other student aid. If the merit scholarship doesn’t cover their full estimated COA (sounds like it does not) there shouldn’t be an adjustment to either program.</p>

8

<p>Re post #6: When are any expenses paid for by a scholarship eligible for a tax credit? Could you explain as this does not make sense to me?</p>

9

<p>To the OP. If she is eligible for the Pell grant she will still get it even with a full scholarship. The Pell is an entitlement grant and is not reduced because of other scholarships. Also it can be used for any education related expenses. If it is used for non qualified expenses it becomes taxable income to the student.</p>

10

<p>Why plan for her to “go awaY” if there is no funds saved for that? Why not attend a school that she can commute to? It would save on room and board worries. She can get a part time job to cover gas – or bus rides.</p>

11

<p>^^^</p>

<p>The student is a NMSF with strong stats who can get top scholarships. So, she has some great options where costs will be covered by scholarships and Pell.</p>

<p>I think now the OP realizes that the student won’t be hurt Pell-wise and probably not tax-wise, since the part that is taxable will mostly come under the $5700 amount that is exempt from taxes.</p>

<p>The student can get…
Free tuition (not taxed)
Stipend (for books) not taxed
room (taxable amount is about $4500)
Laptop (not taxable - it’s “equipment”)
Pell for board and misc. (depending on EFC, could be up to $5550 grant)</p>

<p>If the student’s Pell amount is large enough, then it can cover board and misc and also have some left over to cover any possible tax liability.</p>

<p>Swimcatsmom does a great job explaining on this thread…</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1021026-how-do-scholarships-hurt-pell-eligibility.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1021026-how-do-scholarships-hurt-pell-eligibility.html&lt;/a&gt;&lt;/p&gt;

<p>Generally speaking, a scholarship or fellowship is tax free if you are a degree candidate and the award is used to pay for tuition and required fees, books, supplies and equipment. Any amounts used to pay for room and board and a stipend for living expenses is taxable.</p>

12

<p>

</p>

<p>Computers were only added as qualified expenses for 2009 and 2010 under ARRA. Otherwise, for computers to be non-taxable they would have to fall under the normal equipment rule - they must be required for all students taking the course. I never treated tham as qualified expenses as my kid’s school didn’t require each student to own their own computer…unlike other equipment like lab kits.</p>

13

<p>^^^ and the ARRA allowance for computer is only for 529 accounts (for 2009 and 2010). Not for non taxable scholarships.</p>

14

<p>

No, they don’t.</p>

<p>

</p>

<p>Scholarship money and grants that are in excess of tuition, fees, required books are taxable to the student. Expenses such as room and board are not qualified education expenses so can not be used to make scholarships/grants nontaxable and are not eligible expenses for the tax credits. The only tax benefit that room and board is eligible for is that it counts as a qualified expense for 529 account distributions. But not for tax credits. </p>

<p>For tax credits only tuition and fees and required books and equipment are qualified expenses. And you cannot use the same qualified expenses for more than one tax break. So if grants or scholarships were uses to pay tuition and fees (making the grants/scholarships non taxable) then you cannot also use those same expenses to claim the tax break for tax credits or 529 account distributions. No double dipping.</p>

<p>One exception is that room and board qualified as an education expense in 2009 for students in mid western disaster areas for the Hope credit. Otherwise they do no count for the other tax credits.</p>

15

<p>*as taxable income paid by you, *</p>

<p>Taxable by the student…not the parent.</p>

<p>Our son was not taxed for his scholarship-awarded computer. I don’t think the IRS expects any college kid not to have a computer these days…it seems like it would be standard equipment. </p>

<p>Anyway…we didn’t receive a line item for the computer for tax purposes (on the form sent by the school), so the school must not consider it a taxable item. So, we never paid taxes on it.</p>

16

<p>“Standard equipment” is not the standard for the IRS…the regs specifically state that it must be REQUIRED equipment. My D was looking at two schools which did require all students in her major to purchase an identical laptop…at one it was even included in the list of fees. Perhaps this was true of your son’s program as well. This would meet the standard of required equipment. Just because almost everyone has something doesn’t mean the IRS will see it as required.</p>

<p>Btw, I would caution everyone against relying on what colleges put on those tax statements. You should keep your own records as the schools are frequently wrong with amounts. When in doubt, better that we all just ask swimcatsmom ;)</p>

17

<p>To the OP. If she is eligible for the Pell grant she will still get it even with a full scholarship. The Pell is an entitlement grant and is not reduced because of other scholarships. </p>

<hr>

<p>The Pell will never be taken away, BUT a full scholarship can be reduced by the amount of the Pell. If the scholarship is full tuition, it probably wouldn’t be reduced by Pell. However, if it’s a “full ride,” some schools will reduce the institutional grant by the amount of Pell. Every college handles their scholarships differently, so it is good to find out for sure.</p>

18

<p>Sorry for the misinformation about using the room and board to get the Hope or lifetime learning credit for room and board. It did work 2009 tax year if your dependent’s college was located in a midwestern disaster area only. It applied to my son and his school, and last year my son’s scholarships covered $5,926 (exact figure was taken from his account on school website) in room and board, which we used to get a lifetime learning tax credit of $2,370.40 (40% of the room and board total). It was quite a memorable windfall, considering we did not actually even pay the room and board.</p>

<p>Hoosiermom, if your kid went to IU Bloomington any part of 2009 and you or your kid or IU paid room and board, then you could amend your return and get the same tax credit assuming you qualify in all the other factors like income level, whether child can be claimed as a dependent, etc. per Publication 970 (see page 40 for a list of the qualifying counties).</p>

<p>Swimcatsmom, you can use the room and board tax credit in midwestern disaster areas for tax year 2009 for Hope credit or Lifetime Learning Credit.</p>

19

<p>Thanks bthomp, I’d forgotten about the midwest disaster area special consideration. But your post brings up another question. Figure 4-1 on page 33 of Publication 970 (flowchart to determine eligibility for the lifetime learning credit) excludes expenses which were paid by scholarship funds. So I still do not understand your post.</p>

20

<p>Please stop trying to scare me. haha</p>

<p>The key is “tax-free” scholarship funds in Figure 4-1. The scholarship monies that are used for room and board are not tax-free. Your child reports the taxable portion (including that used for room and board) of the scholarships on his taxes and likely pays relatively little fed tax for it and not much state tax, if any, depending on your state; you claim on your return the Lifetime Learning credit, which can be $2,000+ and pay your kids fed and state tax out of the credit money and probably still come out way ahead. You are not ripping off your kid, because dependents can’t claim the Lifetime learning credit or Hope credit. </p>

<p>You can also claim room and board for a tax credit in midwestern disaster areas for the tax year 2008.</p>