Family money conversations · For students and parents
Understand the aid.
Know the money.
Who belongs on the FAFSA? Who claims the student on taxes? Is that refund a scholarship—or borrowed money? Learn the differences together.
Free from The Johnel Bryant Robinson Foundation and St. Charles Tutoring Lab.
1. FAFSA is an application, not a loan.
The Free Application for Federal Student Aid helps schools determine eligibility for aid. Completing it does not mean you have accepted a loan. Review the school’s offer and choose carefully.
Use the form for the year college will be attended. Follow that form’s tax-year instructions, not simply your most recent tax return. Students and required contributors each use their own StudentAid.gov account, consent to IRS tax information access, and sign their section—even if a contributor did not file taxes.
Being a FAFSA contributor does not by itself make a parent responsible for the student’s loan or tuition. A parent who separately borrows a Parent PLUS loan is the borrower responsible for that loan.
FAFSA preparation and contributor guidance ↗ · Read the aid offer ↗
2. IRS dependent rules and FAFSA parent rules answer different questions.
| Question | What determines the answer? |
|---|---|
| Who can claim the student on a tax return? | IRS dependency rules for the tax year, including applicable age, relationship, residency, support, and other tests. College attendance or filing a student return does not automatically end dependency. |
| Is the student dependent for FAFSA? | The FAFSA’s legal dependency criteria. Not being claimed on taxes, living away, or paying one’s own bills does not automatically make the student independent. |
| Whose parent information goes on FAFSA? | The current FAFSA family rules. Do not choose based only on who claims the student or whose income is lower. |
For parents who are divorced, separated, or never married and live apart, current FAFSA guidance generally uses the parent who provided more financial support during the preceding 12 months. If support was equal, or neither provided support, use the parent with greater income and assets. Child support counts toward the paying parent’s support in this determination. A current spouse’s information may also be required.
When legal parents live together, both parents’ information is generally required, including when they are unmarried. Use Federal Student Aid’s parent guidance for remarriage and other family situations. If a student cannot safely contact a parent, ask the college aid office about unusual circumstances.
Why taxes still matter: dependent claims can affect tax benefits, including who may qualify for education credits. FAFSA uses tax information to assess aid, but changing who claims the student is not a shortcut to choosing a different FAFSA parent. Resolve the tax rules with a qualified tax preparer; ask the college aid office about the FAFSA.
IRS dependent rules ↗ · FAFSA dependency and unusual circumstances ↗ · Which parent’s information? ↗
3. Read each line of the offer.
| Funding | What students need to understand |
|---|---|
| Grants / scholarships | Generally do not need repayment if conditions are met. Check eligible expenses, enrollment and GPA rules, renewal, and what happens if the student withdraws. |
| Work-study | Money earned by working an eligible job. It is not usually an upfront credit that pays the semester bill. |
| Student loans | Borrowed money with repayment obligations. Unsubsidized federal loans accrue interest while in school; eligible subsidized loans receive an interest subsidy during qualifying periods. |
| Parent PLUS / private loans | Separate borrowing with its own approval and repayment terms. Check who is the borrower and whether anyone is a cosigner. |
Compare costs after grants and scholarships first. A loan helps finance that cost; it does not reduce the price. You do not have to accept every loan dollar offered. Report outside scholarships to the aid office so it can check how they affect the package.
Before spending a deposit
4. A school refund is not automatically free money.
Families often say “reimbursement” or “refund.” When funds credited to the school account exceed the applicable charges, the school may pay out a credit balance. This differs from a tax refund or a tuition adjustment after dropping a class.
| Grants / scholarships credited | $6,000 |
|---|---|
| Loan funds credited | $0 |
| School charges | − $5,000 |
| Illustrative credit balance | $1,000 |
A $1,000 credit balance may be available for permitted education expenses if award and school rules allow. It is not automatically unrestricted cash. Check scholarship restrictions and any tax consequences.
Simplified examples, not personal aid estimates. Loan fees are ignored. School bills do not necessarily include every attendance expense. For mixed funding, the aid office must explain the sources and any restrictions; the deposit alone does not identify them.
Loan-funded refunds remain loan money and must be used for authorized education expenses. Ask about reducing or returning unneeded borrowing promptly. For federal Direct Loans, returning funds within 120 days of disbursement can remove interest and loan fees on the returned portion; confirm the process and dates with the school or servicer. Private loan rules differ.
Parent PLUS credit balances normally go to the parent borrower unless that parent authorizes payment to the student. Receiving the deposit does not change who owes the loan.
Federal credit-balance guidance ↗ · Federal Direct Loan returns within 120 days ↗
5. Scholarship money can have tax consequences.
For an eligible degree candidate, scholarship funds used for required tuition, fees, and required course books, supplies, and equipment may be tax-free. Amounts used for room and board or other nonqualifying expenses are generally taxable. Award restrictions still apply.
Keep award letters, school account statements, receipts, and Form 1098-T when issued. Do not use the same expenses for both a tax-free scholarship and an education credit. A tax professional can help coordinate allowable benefits; the existence or size of a school refund alone does not determine tax treatment.
IRS scholarship tax guidance ↗ · IRS education tax benefits ↗
Ask these questions before accepting or spending.
- Which amounts are grants, scholarships, earned wages, or loans?
- What costs are billed by the school, and what must we budget separately?
- What created this credit balance, and what expenses may it cover?
- Who borrowed the money, and how much will be owed?
- Can we reduce or return unnecessary loan funds?
- What changes if enrollment, income, or family circumstances change?
- What tax records and renewal requirements should we keep?
Ask the financial aid office to explain the package and the bursar to explain the account. For tax dependency or credits, use IRS guidance and qualified tax help. If income has changed since the required tax year, ask the aid office whether a special-circumstances review is available.