Do student loans, work study, qualify as income on card application?

Dear Erica,
My daughter is going to apply for a credit card. She is at college. She always works on vacation and made $4,514 and received $24,622 in scholarships, grants, loans and work study. What amount does she put in annual gross income on her card application? – Rosa

Dear Rosa,
The money your daughter earns from her summer job is considered income, but what about the rest?
Policies vary by issuer, so if she’s interested in a specific card, just have her call and ask the representative for details. To get an example, though, I called Discover and here is what the representative told me about money received for scholarship, grants, loans and work study:

Scholarships and grants

Your daughter can include these funds as income, but only if she can draw from the funds on a weekly, biweekly or monthly basis.

However, if she receives the money all at once and it is diverted to her school for expenses such as tuition and boarding, she doesn’t have it on hand. It won’t qualify because it can’t be used to pay a credit card bill.

Student loans

Some issuers do permit student loans to be included as income, as long as the funds can be withdrawn on a regular basis for living expenses. Others don’t allow it at all. When in doubt, it’s best to reach out to your issuer to see their specific student loan policies.

Personally, I think it’s a bad idea.

Although federal student loan interest rates (which, as of June 2021, range from 2.75 percent to 5.30 percent for the 2021-2022 school year) are significantly lower than the average of most credit cards (as of mid-June 2021, 16.13 percent), it’s not free money and everything borrowed must be repaid. Student loans shouldn’t be viewed as “income” because in reality they are a form of debt.

So even if your daughter can and does use student loan funds to qualify for a credit card, it’s extremely important that she repay her entire credit card bill with cash and not her loan.

See related: How to get a credit card as a college student

Work-study

Yes, this is considered income, and your daughter should include every penny of what she makes on the application!

That’s because the money isn’t diverted to the school at all. The award is given to working students as a regular paycheck, and it is meant for normal expenses. Therefore, if she charges a meal out, she should use the money from her work-study program to pay the credit card balance in full.

Have your daughter review a wide variety of student cards and make sure she contacts those issuers she’s interested in for detailed information about their income restrictions.

After that, simple math will lead her to the correct number that she can list on the application. Just have her subtract any of the funds that she can’t include from those she can.

Student credit cards usually come with small credit lines, so her financial limitations shouldn’t be a deterrent.

Another option would be for your daughter to pursue a secured credit card. These products are also great for people who are just starting out because the credit line is guaranteed by a cash deposit.

See related: How a secured credit card helped my score

Finally, know that if your daughter is under the age of 21, the income sources she lists might be checked for validity. Encourage her to be truthful.

Bottom line

As tempting as it can be, fluffing the numbers is not a smart decision. After all, your daughter will want to be sure she can handle her account comfortably. It would be terrible to graduate not just with looming student loans but high credit card debt – and an unattractive credit report.