This may be a silly question. Say, 20k merit award was given to a student upon admission and the school’s tuition is 30k for the first year. Will the student get a tuition bill in the amount of 10k? or is it more complicate than that, including 20k scholarship is taxable or something and the out of pocket cost (after tax) is more than 10k?
If the merit award from the college it will be a credit on your bill. Outside scholarships are usually paid directly to the college too. Scholarships are not taxable unless they exceed the cost of tuition.
A merit award from the school should be credited against the bill. Scholarships and grants used to pay for tuition and many mandatory fees are not taxable.
Even if the scholarships are taxable, the college doesn’t collect or withhold anything. Any awards are credited against your bill. If you owe taxes, you have to pay them to the IRS.
They will never be paid to the student directly.
Outside scholarships, we had three different payment methods, one organization mailed check directly to university. Another one mailed check to student, check made out to university. Another one issued check to student.
We took the two checks to the student payment center at the university when we were there for orientation and they applied half to fall and half to spring bill.
Your tuition bill should just be 10k (full tuition minus the merit scholarship). Scholarships are non-taxable unless they exceed tuition.
Usually the charges and credits are separated by semester. So for the fall semester you would have 1/2 of tuition, fees, room and board charges (if living on campus) on the bill and 1/2 of scholarships/grants.
So if your school costs $30k a year and you get a $20k merit scholarship, then you would be billed $15k for fall semester and get $10k of scholarship credited, leaving a balance of $5k.
Same for spring semester.
You can take up to $5,500 federal student loan for freshman year, so $2,750 per semester.
Then you will have $4,500 left per year to pay. ($2,250 per semester).
From parent contribution, summer work, outside scholarships, but keep in mind they are usually only for one year.
Next year your parents might be able to claim an American Opportunity tax credit for qualified education expenses you paid.
Think of your merit scholarship as a discount on your bill, not money given to you – that is what they really are, but people feel better if they think they are given that amount of money.
And there are tax consequences there might not be if the tuition was just lower and there was no merit. I don’t feel better about it at all.