Are Armed Forces Health Professions Scholarship Program and National Health Service Corps Scholarship Program Stipends Treated As Other Financial Assistance?

Award Year: 2024-25 KA-36719 Helpfulness Rating 442 page views

This guidance is specific to the 2024-25 award year and later. For 2023-24* award year guidance see AskRegs Q&A, Are Armed Forces Health Professions Scholarship Program and National Health Service Corps Scholarship Program Stipends Treated As Estimated Financial Assistance?

This AskRegs Knowledgebase Q&A has been updated to clarify longstanding U.S. Department of Education (ED) guidance that we have reconfirmed with ED. There is no change in guidance.

The Short Answer:
 Stipends can include both scholarship/grant/tuition waiver and employment components. Any part of the 
Armed Forces Health Professions Scholarship Program (AFHPSP or HPSP) and National Health Service Corps Scholarship Program (NHSCSP) stipend that is a scholarship/grant/waiver awarded based on a commitment of future service is not compensation for work or employment according to guidance NASFAA has received from ED; therefore, it is other financial assistance (OFA) when packaging Title IV aid.

If the HPSP or NHSCSP award or stipend includes an employment component for work actually performed while the student is still enrolled in the academic program, the school will need to determine whether that employment component is need-based employment or non-need-based employment. If it is need-based employment, it is OFA regardless of whether it is taxable by the IRS. If it is non-need-based employment, it is income to be reported on the tax return (if filed) and on next year's FAFSA and not OFA when packaging the student with Title IV aid.

Whether any part of the award or stipend amount is taxable is irrelevant in the determination of EFA.

The Long Answer: Awards from the AFHPSP and NHSCSP are considered to be OFA for the following reasons:

  1.  These programs are not among the programs explicitly excluded from EFA in Section 480(c) of the Higher Education Act of 1965 (HEA), as amended [20 USC 1087vv]; and
  2. The assistance is awarded specifically because of attendance in postsecondary education, and is intended to cover the student's educational costs.

Please see the definition of EFA in 34 CFR 685.102(b), specifically, clause (1)(iii), which states: "Estimated financial assistance: (1) The estimated amount of assistance for a period of enrollment that a student (or a parent on behalf of a student) will receive from Federal, State, institutional, or other sources, such as scholarships, grants, net earnings from need-based employment, or loans, including but not limited to- ... (iii) Any educational benefits paid because of enrollment in a postsecondary education institution, or to cover postsecondary education expenses;..." The assumption for this part of the definition is that the student would not be receiving the assistance if he or she was not enrolled at a postsecondary institution. See also 673.5(c) Estimated financial assistance.  Note: Even though the regulatory references provide above specify estimated financial assistance (EFA), starting with the 2024-25 award year under the FAFSA Simplification Act, EFA becomes other financial assistance (OFA). 

There are two main questions you must ask yourself when considering the regulations: 1) What must be counted in a student's financial aid package (i.e., considered a resource or OFA); and 2) How are sources of income (including taxable financial aid) treated?

What must be counted in a student's financial aid package?
In most instances, any form of assistance a student receives because of postsecondary enrollment or to pay for postsecondary expenses is included as OFA in a student's financial aid package. There are exceptions, such as employment earnings that are not based on financial need. Note that scholarships or grants (often paid in stipends) that are awarded based on a commitment of future service are not considered employment.

How are sources of income (including taxable financial aid) treated?
Almost forms of income and certain forms of untaxed income must be listed on the FAFSA for inclusion in the calculation of the student aid index (SAI). If a form of assistance is in taxable income, such as in the student's adjusted gross income (AGI) on the tax return, then that amount should be provided on the FAFSA under "Student Tax Return Information" so that it is excluded from the SAI calculation. Federal Work-Study earnings are also excluded from the SAI calculation; however, that information will be reported by schools to COD so that they can then be excluded form the SAI calculation. See AskRegs Knowlegebase Q&A: Are Schools Required To Report Federal Work-Study Earnings To COD? (Award Year: 2024-25)

Generally, there are two main scenarios in which student financial assistance is taxable:

  1. When the total amount of grant assistance for a degree or certificate seeking student exceeds the total of tuition, fees, books, and supplies, the amount that exceeds those costs is taxable.
  2. When a grant (which can be in the form of a scholarship, fellowship, stipend, waiver, etc.) is awarded on the condition of some form of service, then the entire amount of the grant is taxable. That service component can be for past, present, or future service.

In the case of AFHPSP and NHSCSP, the awards are made based on a commitment of future service. Normally, these would be required to be counted in taxable income. However, there is an exception for these awards. See IRS Publication 970.

The point that some individuals may have missed is that often, students participating in NHSCSP and AFHPSFAP also may have an accompanying employment wage as part of their military service. The amount representing employment wages is not based on financial need and would not be considered OFA when packaging the student. Those wages would be part of taxable income in the AGI if the student files a tax return, and would remain in the income used to calculate the student's SAI.

The stipend that is part of the NHSCSP and AFHPSP award would be considered assistance to pay for the student's expenses related to postsecondary education. Even if there were a change in IRS regulations, it would not affect the treatment of the stipend for Title IV purposes. A scholarship (or stipend, or grant, or waiver, etc.) that requires a future service commitment is still a form of assistance used to pay postsecondary expenses. It is not employment. Therefore, it must be counted as OFA in the student's financial aid package.

 

 

AskRegs Q&As represent NASFAA's understanding of regulatory and compliance issues. They are FOR INTERNAL USE ONLY. While NASFAA believes AskRegs Q&As are accurate and factual, they have not been reviewed or approved by the U.S. Department of Education (ED). If you should need written confirmation of AskRegs information for audit or program review purposes, please contact your ED School Participation Division. NASFAA shall not be liable for technical or editorial errors or omissions contained herein; nor for incidental or consequential damages resulting from the furnishing, performance, or use of this material.