What are the tax implications of a college student placing some financial aid funds into a high-interest savings account?

I am a college student who is receiving financial aid. After all of my school expenses are taken care of, I will have between $8,000 and $11,000 for my "living expenses," such as food, transportation, etc. If I open up a savings account that earns 2% interest and place this "borrowed" money into the account to earn interest while simultaneously using the loans throughout the year, would I need to pay any taxes or file a tax return? I figured that with this amount of money, since I will not be using it all at once, that I could place it in a high-interest savings account, but I am unsure of any tax implications. 

As a college student, you do not have to file an income tax return if you earn an income of less than $12,000. On an account that has a balance of $11,000 at a 2% rate, you would earn $220 of interest income. If some of your financial aid includes a work study, or you work part-time, that could change things, particularly if the jobs withhold federal income tax.

I would recommend that you work part-time for living expenses rather than keep excess aid in a savings account. Depending on whether or not the loan you have is subsidized, you may be accruing interest expenses of 4% (estimated rate) to make 2% interest. A new 2019 study also links working in college with higher earnings post-college. Working as little as 15 hours a week may significantly boost future earning power.

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Answered by: Michael G. Radich, CPA, MST, is managing shareholder with MGR CPA & Consultants PC in Pittsburgh.