Hello there, I’m an incoming undergraduate freshman and in my particular situation I’ve been grossly over awarded with scholarships. What initially drew me to my school choice was the complete coverage of tuition and fees for 4 years of study through a scholarship, however I received a large excess of outside scholarships. The majority of my scholarships are academic-based, and my need-based ones are federal and based on my low income. My school informed me that I will be able to keep the excess money after a refund, and my current institutional scholarships can’t be reduced any further (neither can the federal grants). However, I was wondering what adverse affects there would be of accepting this refund. Of course the idea of extra money excited me at first, especially to help me start saving up for grad school, but the more it comes closer to school start the more I worry that there may be something I’m missing. It’s common that when things seem too good to be true, they usually are, and even though I’ve triple-checked with financial aid with how this would go, I am still worried this might have some consequences in the future.
The federal aid you receive (Pell grant, SEOG?, loans) do have a maximum, so they can be used up. That’s a possible negative if you take more than 4 years and still need more time in undergrad. It’s unlikely that you’ll use up all your Pell because it’s available for 6 years.
The big negative will be taxes. You’ll have to pay taxes on any amount received not used for QEE (tuition, required fees, books). Currently, those amounts used for R&B and that you just get to save (except the loans) are taxed at the estates and trusts rate, which is very high.
If you are going to save the money for grad school, make sure you do save it. It is so easy to spend it rather than get a part time job or give up the weekend away with friends. If you really don’t need it, sock it away in a CD or account that is hard to access.
Will any of the outside scholarships defer the award for a year or two?
I have not asked, but regardless of if they are deferred, my cost of attendance is likely to be covered for the remainder of my four years, as all of my merit-based scholarships from the institution are repeated yearly and cover COA. So they will be excess even if deferred.
My school offered me room and board for next year with the excess, however rooming is not something I am in need of and already expressed my desire to commute. Would saving the excess still be a sensible option in that case? What is your opinion?
Deferred until grad school. Or sometimes can be used for a summer abroad program. Always worth asking.
Pell is a guarantee, so you can get that on top of everything else. SEOG has to be reduced if you are truly over the Cost of Attendance … but the school’s COA is what you use for that, not your personal COA. So … if in the end, you get a refund that is money you don’t need, you can save it.
You will owe taxes on any amount of free money that exceeds qualified tuition and fees.
You won’t need to declare the amount of financial aid that you have saved in the bank in the savings you report on your FAFSA next year.
Not necessarily. Whether or not any or all of OP’s scholarship money that is not used for QEE is subject to the kiddie tax depends on facts that are not yet available in this thread. And it’s not that the estates and trusts rates are very high; the brackets are just extremely compressed in comparison to other filing statuses (single, MFJ, etc.). In some cases, having scholarship money subject to the kiddie tax using estates and trusts rates may be a better thing now then it was when the kiddie tax was based on the parent’s highest marginal rate.