Do scholarship/grant funds for room & board count in FAFSA's no-asset test income threshold?
I'm stressing about how scholarships might affect our FAFSA eligibility next year. My daughter is getting $12,000 in scholarships that exceed her tuition costs, and it's going toward room & board. I know this counts as taxable income for the IRS (ugh), but I'm confused if that $12k also gets counted in our household income for the FAFSA no-asset test (the 175% poverty level thing). We're right near that income threshold where we might have to report assets, and I'm trying to figure out if I should adjust my 401k contributions to stay under the line. If that $12k scholarship money gets factored in, we'll definitely be over. Does anyone know how this works? Do scholarships that cover room & board get counted in the SAI calculations for the no-asset test household income? I need to figure this out before our next paycheck cycle to make adjustments if needed. Thanks!
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Freya Thomsen
I think ur overthinking this. scholrships dont count as income for fafsa. its just for the IRS tax stuff.
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NebulaNomad
•Thanks but I've been reading that some scholarships ARE counted for FAFSA purposes, especially the portion that covers living expenses. That's why I'm confused and worried.
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Omar Fawaz
You're right to be concerned. The FAFSA does treat scholarships/grants differently than the IRS. For the FAFSA no-asset test (simplified needs test), they look at your AGI plus untaxed income. Here's how it works with your daughter's situation: - Scholarship money used for tuition and required fees = not counted as income - Scholarship money used for room & board = reported as student income on the FAFSA However, there's a key detail: The FAFSA has a student income protection allowance. For 2025-26, students can exclude about $9,410 of their income. So only a portion of that $12k would potentially affect your calculations. Also remember the FAFSA looks at prior-prior year income. So if your daughter just received this scholarship for the current academic year, it would affect the FAFSA you file in 2026-27, not 2025-26.
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NebulaNomad
•Thank you SO much for this clear explanation! So if I understand correctly, the $12k room & board scholarship counts as her income (not parental), and she can exclude ~$9,410 of it, meaning only about $2,590 would potentially impact the SAI calculation. That's much less concerning! And yes, this is for her freshman year starting this fall, so it would impact the 2026-27 FAFSA. I'm still going to watch our income carefully this year since that's what will be reported on the 2025-26 form.
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Chloe Martin
What's annoying is that 2 financial aid offices told me 2 DIFFERENT things about this exact situation with my son last year. One said only count what shows up on the 1098-T as income, the other said ALL scholarship money counts for income. THIS IS WHY PEOPLE HATE FAFSA!!!
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Diego Rojas
•Financial aid offices often confuse themselves on this point because the guidance on scholarships has changed over the years. The definitive guidance is from the Federal Student Aid handbook, which states that scholarships used for non-qualified educational expenses (room, board, etc.) should be reported as student income on the FAFSA. But remember that the student income protection allowance means much of this might be excluded anyway. And since the FAFSA looks at prior-prior year income, there's often a timing disconnect that further complicates things.
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Anastasia Sokolov
wait isn't fafsa changing everything for 2025-26 anyway? i thought they got rid of the asset test completely with the fafsa simplification act
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Diego Rojas
•They simplified the asset reporting, but didn't eliminate it entirely. The Simplified Needs Test (now called the Student Aid Index) still has income thresholds where assets don't need to be reported - that's what OP is referring to with the 175% of poverty level threshold. If your income is below that threshold, you don't report assets. If it's above, you do. That threshold still exists, it's just calculated slightly differently now.
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StarSeeker
I went through this exact situation with my son last year. Here's what I learned after hours on hold with FSA: The scholarship money for room & board ($12k in your case) will be counted as your DAUGHTER'S income, not your household income. This is super important. It doesn't directly impact the no-asset test calculation for parents. The 175% poverty threshold looks at PARENTAL income only. Your daughter's income is calculated separately in the Student Aid Index (SAI) formula. So in your scenario, you should focus on your own income for the no-asset test threshold, not your daughter's scholarship money. Honestly though, trying to reach someone at Federal Student Aid to confirm this was a nightmare - I spent 4 days being disconnected before I finally got through. I discovered a service called Claimyr (claimyr.com) that got me connected within 15 minutes instead of waiting on hold for hours. They have a video demo at https://youtu.be/TbC8dZQWYNQ that shows how it works. Totally worth it to get a definitive answer.
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NebulaNomad
•Oh wow, this is super helpful! So you're saying the scholarship money wouldn't impact whether we have to report assets or not, since it's counted as HER income not OURS? That would be a huge relief. I'll check out that Claimyr service too - I've been dreading making that call to FSA but sounds like it might be worth it to get confirmation.
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Sean O'Donnell
Everybody here is overthinking this. When my kid got a scholarship, we just didn't report it on FAFSA at all. Financial aid office never said anything. ¯\_(ツ)_/¯
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Omar Fawaz
•This is risky advice. The Department of Education does verification checks on a percentage of FAFSA applications each year, and scholarship information is something they often verify. Intentionally omitting reportable income could lead to having to repay aid, potential penalties, and in extreme cases, fraud charges. Plus, institutions share information. If the school has record of the scholarship on their end but doesn't see it reported on the FAFSA, that often triggers additional verification.
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Sean O'Donnell
•lol ok fine maybe not the best advice. just sharing what worked for us! 🤷♂️
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Chloe Martin
DOUBLE CHECK with your school's financial aid office! Each school has their own policies on how outside scholarships impact your aid package. Some schools will reduce loans first (good), others reduce grants first (bad). My daughter's school had a "displacement policy" that basically penalized her for getting outside scholarships by reducing institutional grants dollar-for-dollar. Total scam!
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NebulaNomad
•That's a great point I hadn't even considered. I'll definitely check with the financial aid office about their displacement policy. Would be awful if the scholarships she worked so hard for just resulted in less institutional aid.
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Diego Rojas
To summarize the correct information: 1. Scholarship money used for room & board is counted as the STUDENT'S income on the FAFSA, not the parents' income 2. The no-asset test (175% of poverty level) only looks at PARENT income, not student income 3. Student income is assessed separately through the Student Aid Index formula, where they get the income protection allowance (~$9,410) 4. Since this is for the 2024-25 academic year, this scholarship income would affect your 2026-27 FAFSA, not your 2025-26 FAFSA So you can focus on managing your own income/401k contributions without worrying about how your daughter's scholarship might push you over the asset reporting threshold - it won't.
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NebulaNomad
•Thank you for this clear summary! This makes me feel so much better. I'll still be careful with our income this year (for the 2025-26 FAFSA), but at least I don't have to factor in her scholarship when making those calculations.
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