<p>Here are the facts:</p>
<p>$12,000 scholarship made payable to the student (not the university). No specific terms for the scholarship, can be used as student wishes. No stipulations whatsoever.
$20,000 of unmet financial need for this coming academic year (2014-2015). However there are other forms of need on the account, including a mix of institutional grants, loans, and merit scholarships. There is a low enough EFC that causes there to be that much unmet financial need.
The $12,000 scholarship check written out to student is tax free as long as it is used for qualifying educational expenses according to the IRS Publication 940.</p>
<p>The question:</p>
<p>The student has the scholarship money now as of a few days ago in bank account, as check was written out to student. Student would rather not pay income taxes on said money if possible. Can the following sequence of events occur without any problems:</p>
<p>1) Student first cancels all loans (subsidized and unsubsidized) from the financial aid package. Any money already disbursed from federal loans is returned, and no loans will be taken out in the spring. The bill increases by the amount of the loan cancellation.</p>
<p>2) Bill for the Fall semester is paid (higher amount than before due to loans no longer being credited in financial aid package). </p>
<p>3) Student holds cash from scholarship in bank account and collects any interest on money until Spring semester bill arrives in December.</p>
<p>4). Student (in December) writes check to university for the full amount of the scholarship and has it applied to the Spring tuition bill (qualifying educational expense).</p>
<p>And finally, the student should not pay any income taxes on the scholarship as the funds were used for a qualifying educational expense (paying the tuition bill). It is excluded from adjustable gross income.</p>
<p>Would all of these things be reasonable? Additionally, when using the scholarship in December, would it affect any other part of the financial aid package (note that the unmet financial need is $20,000. There would still be even more unmet financial need after the scholarship was applied, before the loans are even cancelled). </p>