I am an MD/PhD student at a public university. During medical school training years, part of my tuition is covered by the school (via NIH grant funding) and the remaining portion is covered by me. I also receive an annual stipend from the school. I use government student loans that I take out and my stipend to cover the remaining portion of my tuition, other education expenses, and living expenses. In past years, my stipend was distributed monthly, I paid quarterly estimated taxes, and completed my tax return using a 1099-MISC provided by the graduate/medical school department. As of August 2021, I will be transitioned to a lump-sum stipend payment distributed at the beginning of each semester and the stipend will reported on a 1098T instead of a 1099MISC. My semester tuition is due prior to the distribution of my student loan. Usually, the school just has me wait until my loan is dispersed to pay tuition (this happens after the tuition is “past due” but they don’t charge me late fees). Now, that I have a lump-sum stipend coming at the beginning of each semester, I would like to use my stipend to pay off my tuition and then use my loan to pay for living expenses over the rest of the semester. As I see it, stipend monies used on tuition are considered tax exempt (because they were used for qualified education expenses) and loan monies used for living expenses are not taxed because, well, they are loans. I want to know if this is a legally acceptable way to consider a major portion of my annual stipend as tax exempt. Or if government student loans must always be applied to tuition before any remaining balance can paid using stipend/income qualifying it as "tax-exempt" (even if the timing/due dates work out as I have outlined above).
