I think it thinks my student grants are taxable income.
Yes, you are taxed on grants, scholarships and stipends on the amount that exceeds your qualified education expenses.
No, you are not taxed on loans.
Scholarships, fellowships, and Pell grants received by registered students who are working towards a degree at a college, university, or other accredited educational institution are generally nontaxable as long as the money is used for qualified education expenses.
On the flip side, you can't claim education credits or deduct expenses that were paid with these tax-free funds.
If you use your scholarship to pay for any of these,it counts as income and the amount paid is taxable:
Room and board
Any fees, books, and supplies or equipment that are not required for your courses
If you’re getting a degree at an eligible school, yourscholarship is tax-free when used for:
Tuition and fees
Fees, books, supplies or equipment required for your courses
Any scholarship or fellowship for services received under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program
For example, if you used your scholarship to pay for tuition and room and board, you would be taxed on the room and board payment but not tuition.