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

Aug 21, 2019

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.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

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

Pennsylvania CPA Journal

Read the latest from the Pennsylvania CPA Journal online or via the mobile app and digital edition.

Read More


Get the latest info on professional trends, management, and leadership skills on CPA Now.

Read More

Premier Sponsors

Platinum Sponsors

Gallagher Bollinger Logo

Silver Sponsors

Paychex logo
Capstan Logo
epsa USA

Bronze Sponsors

Fox School of Business, Temple University

Interested in becoming a sponsor? View packages >