Do Scholarships Count as Income for Credit Cards? A Student's Guide

As a student navigating the world of credit cards, loans, and financial aid, understanding how scholarships are treated as income is crucial. You may need to report your income on various applications, such as those for credit cards, loans, and financial aid. Understanding the specifics of each application can help you better prepare and potentially improve your chances of approval. This article breaks down the complexities of reporting scholarships as income, specifically in the context of credit card applications.

Income Reporting for Students: An Overview

When filling out financial applications, certain types of financial support don’t count as income. It's important to accurately represent your income and always refer to the specific guidelines provided in each application, as definitions and requirements can vary. As a student, it's important to accurately report all eligible sources. Understanding what constitutes income on financial applications can be confusing for anyone, and student income potentially even more so. Remember to be honest and accurate when reporting your income.

Applications Where Income is Reported

There are several types of applications where you may need to report your income as a student.

Student Credit Cards: When applying for a student credit card, you'll need to provide information about your income. This helps the credit card issuer determine your credit limit and whether you qualify for the card. That said, there is no set minimum income requirement that applies to all student credit card applications, and not having a job does not immediately disqualify you for a credit card.
Student Loans: If you're applying for a student loan, whether federal or private, you'll need to report your household income to determine your eligibility and the amount you can borrow. For federal student loans, income information can help determine your Expected Family Contribution (EFC), which can influence the types of loans and the amounts you qualify for. Lower incomes could possibly result in higher eligibility for subsidized loans, as could a student applicant receiving no financial assistance from their legal guardians. All of that said, according to the Federal Student Aid Office "there is no income cut-off to qualify for federal student aid.
Financial Aid: When applying for financial aid, such as grants, scholarships, and work-study programs, you'll need to provide information about your income, and likely the income of your parents and/or legal guardians, as well. This helps the financial aid office determine your financial need and the amount of aid you're eligible to receive. For example, students with household incomes below $50,000 might be eligible for more substantial need-based aid than those with incomes above $200,000.
Other Loans: If you're applying for a loan, such as a car loan or personal loan, you'll need to provide information about your income. This helps the lender determine your ability to repay the loan. Generally, higher income levels can lead to more favorable loan terms and interest rates, as they suggest a lower risk to lenders.

When reporting your income on applications, you can generally include any regular and reliable source of income. So, all of that said, what income should you put on your financial applications?

Scholarships and Credit Card Applications: The Key Question

You might be surprised at what is-and isn’t-included in your total. But you may wonder if you earn enough income to qualify for a student credit card. After all, some credit card issuers require proof of income before approving your application. The good news is that there are credit cards for students with income that doesn’t need to come from a job. It’s important to understand what counts as income if you plan to apply for a credit card for students. Claiming grants and scholarships as income is generally allowed.

Read also: Camp Scholarships Guide

The CARD Act of 2009 and its Implications

Have you heard of the CARD Act of 2009? Part of this act says borrowers aged eighteen to twenty must prove they can independently pay back their debt to get approved for a student card without a cosigner. This means a student can't use their parent's annual income. But there’s good news. All student applicants eighteen or older can include a monthly student allowance or deposit of funds from a parent as income. But you'll need to make sure that any financial support you receive goes directly into a bank account in your name to qualify as personal income.

Age Matters: Credit card companies don’t require applicants twenty-one and older to have a cosigner. Adults younger than twenty-one who prove they can independently repay their debt typically won’t need a cosigner either. But if borrowers eighteen to twenty years old can't provide enough proof of income, a cosigner's income may count on a student credit card application.
Spousal Support: The support of a partner can make a big difference when putting yourself through school. And if you’re twenty-one or older, you can include spouse or partner income (along with your own) to qualify for a student credit card. Unfortunately, if you’re under twenty-one you can only report your own independent income or assets.

What Counts as Income for Student Credit Cards?

Here are some ideas for what to put for income on credit card application. You can include each source of income in your application to increase your chances of approval.

Employment Income: If you're eighteen or older and work part-time or full-time, you can count earnings from your job-including tips and bonuses-as income on a student credit card application. You can also include pay from freelance work and other irregular sources of income.
Student Allowances: All student applicants eighteen or older can include a monthly student allowance or deposit of funds from a parent as income. But you'll need to make sure that any financial support you receive goes directly into a bank account in your name to qualify as personal income.
Partner Income: And if you’re twenty-one or older, you can include spouse or partner income (along with your own) to qualify for a student credit card. Unfortunately, if you’re under twenty-one you can only report your own independent income or assets.
Remaining Tuition Amount: However, depending on the credit card issuer, the remaining amount after paying your tuition may count.

What Doesn't Count as Income?

It’s equally important to know what doesn’t count as income on your student credit card application. It's important to check the specific income requirement of each credit card issuer, because policies may vary.

Understanding Scholarships: Taxable vs. Non-Taxable

Scholarships are often seen as a saving grace for students who need help covering tuition and other college expenses. Scoring a scholarship can reduce the amount you need to borrow, or help you avoid student loans altogether. However, many students are unsure about whether the funds are considered taxable income by the IRS. A scholarship is a financial award given to students by a school, university or other organization. They are meant to be used to cover the costs of tuition, fees, and other educational expenses.

Tax Implications of Scholarships

Your scholarship or grant may be tax-free if you are pursuing a degree at an eligible educational institution. It also depends on how the funds are used. Scholarships reported on the 1098-T form are generally not taxable, if they are used for qualified education expenses.

Read also: Benefits of NSHSS Scholarships

If your scholarship funds are used for non-qualified expenses, you may need to report the amount as taxable income on your tax return. Qualified education expenses typically include tuition and fees required for enrollment or attendance at an educational institution. They do not include expenses like room and board, travel, or personal expenses.

Getting an outside scholarship can impact the amount of financial aid you receive from your college.

Scholarships and Income for Credit Cards

While scholarships can be considered income for credit card applications, it's important to understand how and when this applies. Credit card issuers are primarily interested in your ability to repay the debt. Therefore, they want to see reliable and consistent sources of income.

Scholarships as a Source of Funds: Scholarships that directly cover tuition, fees, and other qualified education expenses demonstrate your ability to handle financial responsibilities. This can be viewed positively by credit card issuers.
Consistency is Key: If you receive a regular scholarship disbursement, it can be considered a consistent source of income. However, a one-time scholarship might not carry as much weight.

Student Credit Card Options: Discover as an Example

Like all credit card issuers, Discover accepts amounts directly deposited to student borrowers as income. Discover also accepts income that’s regularly available to you from another person if you're twenty-one or older (or eighteen or older in certain states).

Discover offers two credit cards for students, both of which are rewards credit cards that can earn you cash back on your purchases. The Discover it® Student Cash Back card lets you earn 5% cash back on everyday purchases at different places you shop each quarter, up to the quarterly maximum when you activate. And with the Discover it® Student Chrome card, you can earn 2% Cashback Bonus® at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, automatically.

Read also: Scholarship Guide

Life After Graduation: Transitioning from a Student Credit Card

After you qualify for a student credit card, you’ll be on your way to establishing credit, earning cash rewards, and more. But what happens when you graduate? Some credit card issuers will instantly convert your student credit card to a regular credit card, with no additional income requests or actions taken by you. With responsible use, a student credit card is a useful tool for building a good credit history that will serve you well after you earn your degree.

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