On top of sorting out whether you’re eligible for federal student loans and the difference between subsidized and unsubsidized loans, you may be wondering how student loans may impact your taxes and whether student loans count as income. In a nutshell, the answer is no, student loans are debt, and do not count as income.
Fellowships and other forms of financial grants, however, may be counted as income, depending on how the funds are spent. And loans that are forgiven can count as income.
Read on for more about the tax implications of student loans, grants, and student loan repayment. Just keep in mind that this is simply a helpful guide as you begin to explore the basics of student loans and taxes; always seek out a tax professional to help you with your specific situation.
Table of Contents
Key Points
• Student loans are classified as debt and do not count as taxable income, unlike certain types of forgiven loans which may be taxed.
• Scholarships and grants can be taxable under specific circumstances, particularly if used for non-qualified expenses like room and board.
• The Student Loan Interest Deduction allows borrowers to deduct up to $2,500 in interest paid on student loans, subject to income limits.
• Employer contributions towards student loans are tax-free up to $5,250 annually, but any amount above this limit is considered taxable income.
• Refinancing student loans may help reduce monthly payments or interest rates, but it may also result in losing federal loan benefits.
Are Student Loans Taxable?
As noted earlier, though, student loans are not taxed as income.
This is generally true of other types of loans as well, like mortgages, and personal loans (unless the loan is forgiven) — basically most debt that needs to be repaid. The IRS considers student loans a form of debt — not income — therefore, it is not taxed.
The only time that student loans (or other types of debt) can be taxed is if they are forgiven during repayment. If you are eligible for a federal student loan forgiveness program and have met the requirements (which vary, and may include stipulations like making eligible payments for 20 to 25 years via an income-driven repayment plan or completing eligible public service work/payment requirements, and others), the remaining balance on your student loans (the amount forgiven) may be taxed as income, depending on the repayment plan. This could amount to a hefty tax bill.
Are Scholarships Taxable?
The high-level answer to this question is: it depends. There are many different forms of scholarships, grants, and fellowships that are awarded to students to cover the costs of studying and research. Some are need-based and some are merit-based. The basic difference between scholarships and loans is that a scholarship is given while a loan is borrowed. You won’t typically have to pay back a scholarship, but you do have to pay back a loan.
Most scholarships are not taxed when you are enrolled in a formal educational institution and the scholarship is directly used to cover the costs of tuition, fees, books, and supplies used for study. These are typically referred to as qualified educational expenses.
There are some situations in which scholarships can be taxed, however. For instance, a scholarship can be taxed as income if you use it to cover what are considered “incidental” expenses related to your education such as travel, room and board, and supplementary equipment and supplies.
Another type of scholarship that can be taxed is a scholarship that has a service-related requirement to it. This frequently applies to scholarships for graduate students. If you are required to teach, provide research assistance, or perform other services as a condition of your scholarship, it can be taxed as income (with some exceptions) and you will be required to report the scholarship as part of your gross income.
(For more about which types of scholarships are considered income and what scholarship-related activities are taxable, check out IRS Publication 970 .)
Do Student Loans Come with Any Tax Benefits?
Student loans aren’t usually taxable as income, and in fact, they may come with a tax benefit that is meant to make repayment a little easier on borrowers investing in their education.
The student loan interest deduction allows you to deduct the amount of interest you paid on both federal and private student loans, up to a maximum of $2,500 per year. In order to be eligible to deduct the full amount in 2025, your modified adjusted gross income (MAGI) must be $85,000 or less (or $170,000 for married couples filing jointly). The amount you’re allowed to deduct in 2025 is gradually reduced if your modified MAGI is more $85,000 but less than $100,000 (or more than $170,00 but less than $200,000 for married couples filing jointly. Income above these thresholds renders you ineligible for the deduction.
As a tax deduction, the amount deducted helps to lower your overall taxable income, potentially resulting in a lower tax bill or higher tax refund. This deduction can also help defray some of your repayment costs.
Recommended: Income-Based Student Loan Repayment
Are Employer Student Loan Payments Taxable?
An increasingly popular benefit offered in some workplaces is help with education costs and student loan repayment. Employers such as Aetna, Fidelity Investments, Google, and more offer student loan assistance programs to employees.
Currently, employers are allowed to contribute up to $5,250 toward employees’ qualified education costs tax-free. Payments or reimbursements above that amount are considered taxable income for the employee. It’s important to note that this special tax treatment is temporary, however, and expires December 31, 2025. After this date, the full amount of any employer contributions toward education expenses or student loan repayment will be taxed as income.
How Can I Make My Student Loan Repayment Easier?
The cost of a student loan comes in the form of the interest you pay each month on the balance owed. Consider this example: Say you have a $30,000 loan with a 7% interest rate. On the 10-year Standard Repayment Plan, you would pay roughly $11,800 in interest in addition to repaying the $30,000 principal.
So what can make repayment easier, other than the student loan interest deduction? One option is to refinance your student loans with a private lender.
If you already have private and/or federal student loans, you may be able to refinance your student loans at a lower interest rate than you currently are paying. If you are eligible to refinance your student loans, you could shorten your term length, qualify to lower the interest rate on your loans, or possibly lower your monthly payment (by extending your term). But you may pay more interest over the life of the loan if you refinance with an extended term.
There are other potential drawbacks to think about. For instance, federal student loans come with several benefits and protections such as deferment, forbearance, income-driven repayment plans, and certain forgiveness programs that private loans do not offer. If you think you might need some of these benefits, or if you are eligible for student loan forgiveness, it might not be the right time to refinance.
However, if you have a steady income and good cash flow — along with other aspects of your financial picture that are appealing to a lender — and you are ready to focus on paying down your loans, refinancing might be the right solution for you.
The Takeaway
Generally, student loans are not considered income, so they are not taxed. The exception is when some or all of your student loan balance is forgiven. In some cases, the IRS may count the canceled debt as taxable income.
Educational grants and scholarships, on the other hand, may or may not count as income. Typically, they are taxed when they are spent on expenses outside of tuition and fees, such as room and board and travel.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Does a student loan count as a source of income?
No, a student loan does not count as a source of income. The IRS considers student loans a form of debt, not income, which means, in most cases, that they are not taxed. The only time student loans may be taxed as income is when they are forgiven during repayment.
Do student loans count as household income?
No, student loans do not count as household income. The only time student loans may be considered as income is when the loans are forgiven during repayment. If you have forgiven student loans, you may want to consult with a tax professional about your situation.
Is student financial aid considered income?
It depends on the type of financial aid you receive. For example, student loans are not considered income. Most scholarships used to pay for qualified education expenses are not considered income. A Pell Grant, as long it is used for qualified educational expenses, is also not considered income.
However, earnings from a work-study job, and scholarships that require you to teach or perform other services, are generally considered taxable income. You may want to consult a tax professional about your specific situation.
SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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