My DD was exceptionally fortunate in the hunt for money this year. She is a high school senior, with exceptional community service. All totaled, she has won approx. $54,000 from local and state scholarships (didn’t have lots of luck nationally, although there are still few yet to be announced).
We took this very seriously this year and it was practically a full time job.
My question is this: She qualifies for a PELL and a small grant from her school. We were offered loans but will not be accepting them. We estimate this money will cover her entire four years. Of the money coming to school in August, she will have a significant amount over what we owe in August. What happens to this money? How will this affect her FAFSA next year? Basically, what do we do??
We honestly are stunned at what she has won and in a million years, never dreamed she would win so much. Thank you for any advice you all can offer. I have been a long time lurker.
Just checking for clarity…she got $54,000 in local scholarships. That is amazing!
Things for you to do.
You are required to report all outside scholarships to the college. So...do,that if you haven’t already done so. This might reduce her loans and work study, and any grant aid the school awarded. It will not reduce her Pell.
You need to find out ASAP whether these scholarships will be allowed to be accepted if they exceed the cost of attendance for THIS year. Some outside scholarships are very specific...and won’t be awarded in excess of the cost of attendance. And some are also very clear...it’s for this year...and not subsequent years.
If the excess IS allowed by the college, any amount over the billable costs (usually tuition, fees, room, board) will be refunded to your daughter a few weeks into the term.
If that happens, I would suggest setting up a separate account for that money…as scholarship money is not counted as an asset when you apply for aid in future years, I believe. @BelknapPoint ?
Any money used for things other than qualified educational expenses (tuition, fees, books) WILL be considered taxable income for your kiddo. If she is receiving all that money in 2018, I would guess that all of the overage will be taxable for the 2018 tax year...even though you intend to use it in future years for college.
This money probably should be put in a 529 account. @BelknapPoint your thoughts?
BUT really…the most important thing…find out if there are limitations on these scholarships. Many. Many won’t award aid in excess of the cost to attend for one year. So make sure!
Thank you! It wasn’t just local, she won several state scholarships. In my reading of all the applications and the letters of announcements, nowhere was it stated that it had to be used/exceeded for one year. In other words, I am fairly confident all of it will be coming back to her.
This money will only be used for education purposes, so no tax correct? She will still have a part-time job to pay her car insurance.
You can ask if some of the money can be deferred to future years. If any can be, do that! Also, you need to be mindful of the tax year when each payment is made. Also, keep very good records. It’s likely your 1098-T from the school will be incorrect as the school will not keep track of the scholarships or when they are processed through the school.
Any amount used for room, board, and person expenses WILL be considered taxable income for her. She might not have any taxes owed…but it will be taxable income if used for these things.
What I’m not sure about…she is receiving all of this money in 2018. So…will this extra be taxable for that year? Because it’s not being used for tuition, fees, books?
Sorry, I made an incorrect note, one scholarship for $40,000 will pay out over four years. That one we will be using for housing/food costs. The rest all come this year.
We found scholarships came down to three things, community service was most important. Letters of recommendations that were excellent and essays. People always think it’s about many extra-curriculars but the reality was everyone has tons of EC. DD had an amazing amount of community service hours for one organization and her LOR were off the chart.
Finding them is another story. Do not rely on the school. They literally knew nothing about 3 local scholarships I asked about. Don’t rely on major college scholarship search engines, useless unless you like to give them your data.
Use you profession, organizations you belong to. Local charities. I found another local high school had a blog I followed. I was constantly searching.
Also, attention to detail. FOLLOW THE DIRECTIONS. Many are tossed because people don;t follow directions. One application took us a month to assemble but she won it.
Also, apply. One she won, she was the only applicant from her whole school. Say what???
Yes, an excess Freshman year. I know books won’t cost that much but tuition will just be covered with her PELL, if costs go up, we will need that over four years.
So…basically, you will have $14000 excess over tuition and fees for freshman year. Right? $10,000 will go to room and board, and another $14,000 some of which will go towards books.
One thing you need to check very carefully. Some outside scholarships are very specific, and can ON!Y be used for tuition and fees. Make sure that you know what yours can actually cover.
The Pell can actually be refunded to the student if something else is used to cover tuition.
Not correct. Funds used for things other than tuition, fees, books is taxable. The money is taxable for the year received. If she receives $10k every fall, it is taxable in that year. If she receives $14000, plus the $10k (from the $40k) in Sept 2018, that will be taxable income for 2018 (you said she’d be receiving a school grant and Pell for her tuition, fees).
The $10K used for room and board is taxable income, and will be every year.
The $14K excess this fall minus what is spent on books is taxable income for this year (2018).
It’s a GREAT problem to have as I suspect you’ll have enough in extra to pay the taxes!
The new tax laws with their larger standard deduction will definitely help out. I imagine your daughter will actually pay very little come April. Just don’t let her spend the whole amount on a car or something without holding back what you expect her to owe in taxes.
Except that the new tax laws make the part that IS taxable taxed at a higher rate (the trust rates, not the old parent’s rate). If it really is $24k in taxable scholarships (many scholarships pay by semester, so some may be pushed into 2019), plus whatever earned income the student has for 2018, that could be quite a large tax bill.
It will never be 100%, so getting a scholarship is always better than not getting one. I think there are ways to make the tax hit lighter, by having the scholarships paid out in different tax years. The OP said that’s not possible.
College is four academic years, but five tax years. If some of scholarship money can be distibuted each September and January, that might spread the tax burden out a bit.