Scholarship money spent on non-QEE is taxed to the student under the kiddie tax using the estates and trusts rates and brackets.
If the student is attending school in a state different than the home state, the taxable scholarship money will be sourced to the state where the school is located, and the student will need to file a return for that state (assuming the state has an income tax). The home state likely has a credit for taxes paid by a resident to another jurisdiction. The situation for a person having reportable income in two different states can get complicated quickly, and depnds on the tax laws of each state concerned. Also, simply getting a driver’s license in a new state is very likely not enough to make a change of legal state of residence. That determination will be made by looking at the totality of circumstances.
Probably not, as it would be tough for the student to satisfy the residency part of the federal tax dependent test.
Thanks @BelknapPoint This is very helpful. I am seeing the light now.
Just one more question: if all scholarships received are either granted directly by the school or are outside scholarships paid directly to the school (and not the student), will the form 1098-T contain all the information needed to file taxes or does one have to keep track of things?
Hi, I second the recommendation of Lehigh. I’m an alumna who spent the weekend at Lehigh’s Legacy Weekend and Open House, so I have lots of up-to-date info to pass on. One of Lehigh’s key institutional priorities is expanding their footprint in CA. I think your daughter, in the top 1% and an engineering applicant, stands an excellent chance of securing merit IF she shows demonstrated interest. This means she needs to open emails and nail her supplemental question of Why Lehigh?
Good luck! I’m happy to answer any additional questions.
This student already has in excess of 20 colleges she is applying to. In addition, she is applying for some competitive scholarships that require additional applications. And school has started at her private prep school…where she also is likely already having practices for her varsity sport.
Some of the suggestions of additional colleges to consider are excellent, and many have already been made upthread someplace…at an earlier date.
Frankly, at this point, unless this student finds some real spare time, I would not suggest adding any additional colleges or applications to her to do list.
A couple months ago I posted something quite similar. EFC of 40k… an expensive private school estimates 20k in presidential scholarship… That means that after the student earns the merit award, his out of pocket costs are… 40k. As near as I can tell from many hours of reading, there are very few cases in which this case results in the merit award reducing costs below the EFC and yes, as someone in a similar boat, it feels strange to have your student’s work to earn a merit award not impact in any fashion the amount the family will pay out of pocket.
This comes up a lot and to be honest, many posters say that it depends and that schools don’t always do this the same way… but I haven’t read cases on CC where parents or students are posting "I received [this] merit award at [some] school which reduced our costs below our FAFSA EFC. "
This may often be, but is not always the case. For example, UChicago stacks university merit on top of FA and outside scholarships reduce FA by 50 cents on the dollar. Check with each school to be sure.
Reasons why it might be better to have merit aid rather than need based aid even if the OOP to the family remains the same:
The merit is a ‘for sure’ thing once awarded. It won’t change if the sibling doesn’t go to school or if the parent gets a big bonus in the tax year.
A school may allow stacking of merit awards or allow them to be used for books, to reduce loans, may only partially reduce need based financial aid because of a merit award. (I think Northwestern has a detailed description of how merit changes need based) Since college applications and scholarship applications are all happening at the same time, you just have to apply to everything and see how it works out. If the student happens to pick a school that allows stacking, well then bingo, you win if you have that outside merit award. If you didn’t apply because it wouldn’t change the OOP, then you pay your EFC.
Student might get several outside scholarships that add to more than EFC and actually will benefit using 2+ merit awards over school FA.
It’s fun to win things or be recognized for your hard work or talents. I was proud of my kids for getting academic merit, athletic scholarships, and talent scholarships. I was grateful for the need based money we received, but it didn’t cause me to shout from the rooftops, “My kids got need based financial aid! Yea, we are poor.”
Merit actually makes me a little more nervous, but I know already what need based will look like for 2 years due to the prior prior year thing. I know a lot of kids have high GPAs in high school, and 3.0 or 3.2 might not seem hard to maintain a scholarship but I’ve heard pretty often that drops from HS are common.
I think GPA concerns are where you need to know your individual student. We have never worried about our kids losing their merit bc we know their work ethic and their academic abilities.
Just like comments about repeating AP level coursework, etc. That is not a universal concern. Some kids need to repeat (our sr will repeat them at her U) but her siblings would have been frustrated with boredom by repeating.
@Mom2aphysicsgeek Agreed. Know your kid. My D’s scholarship requires a 3.5. It’s no problem for the kids that win and accept, regardless of major. Most graduate summa or cum. The scholarship committee chooses carefully and wisely.
But if the school replaces the need based aid with outside merit aid, if the merit aid goes away wouldn’t the need return and the school reinstate the need based aid? I don’t see how the student would be worse off in replacing the need based offer with merit.
There are some outside merit scholarships that have a gpa requirement (Florida Bright Futures does) but usually that’s a thing to keep your school merit aid. You do have to look at the requirements to continue a merit award when choosing a school based on the affordability with the award.
Also, schools will usually give a merit schollie kid a probation period if their GPA dips too low.
The school has no incentive to aggressively push kids off their merit money. Since that often would result in the kid leaving school. That departure hits the school’s retention rate and grad rates, both of which are bad for USNWR rankings.
Yes, college generally will spread 3.0-4.0 high school students over the 2.0-4.0 range in college. Even superselective colleges will spread 3.8-4.0 high school students over the 3.0-4.0 range in college.
“Know your kid. My D’s scholarship requires a 3.5. It’s no problem for the kids that win and accept, regardless of major.“
Same here. Also know your school: look for the GPA percentiles by major if that information is published. If not, ask before accepting the scholarship. If 30% of students in that major have a GPA above the cutoff, then the recipient of a scholarship for the top 1% of students isn’t likely to have a problem.
Well…maybe. At colleges that meet full need for all students, the need based aid would likely be reinstated. But for colleges that don’t meet full need, I would ask that question of the schools. In subsequent years will the need based aid be reinstated if the student doesn’t continue to get merit awards?
I will add, our kids went to pricey private universities, and we didn’t qualify for need based aid according to the schools. Both kids got scholarships…one a pretty substantial one and the other a smaller one. We made it very clear that maintaining those scholarships was a condition of continuing to attend those schools…either that or the kids would need to find the additional money. Luckily both maintained easily the 3.0 GPA the needed to keep their awards.
I don’t know why… maybe I didn’t get enough sleep or have been waking up at night worrying if my kid is going to be able to afford college… but I laughed out loud at this. So true and funny.