If scholarship money is used to pay student loans (not just interest) while in school does it have to be counted as income?

[Anonymous]

Scholarships are more than college expenses, so it was used to pay some student loan principal and decline other loans. Now it is showing as income and my daughter owes over $2k this year.  Is that correct?

[Marketstar]

Yes, grants and /or scholarships are taxable income to the extent that they exceed qualified educational expenses to include tuition, fees, books, and course related materials.

If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return.

The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses.

However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6,300, then the student doesn’t even need to file a tax return, and nothing has to be reported.

https://ttlc.intuit.com/questions/2732554-i-claim-my-son-as-a-dependent-he-has-a-taxable-scholarship...

Be sure to enter all Qualified Education Expenses