Maximizing the value of the AmeriCorps education award

This practice provides a basic overview of some of the more critical issues when considering the potential effects of AmeriCorps service on educational financial aid and taxation. For a more thorough and up-to-date exploration of the many variables involved, consult the Segal AmeriCorps Education Award Tutorial.

What should AmeriCorps programs know about the education award?

• AmeriCorps members have up to seven years to use the education award.
• AmeriCorps members may choose to use their education award in any of the following ways:
  • Repay qualified student loans
  • Pay current educational expenses at a qualified school, which may include tuition, fees, books, transportation, or other educational necessities
  • Pay a combination of current educational expenses and repay qualified student loans
  • Transfer the award to a child, grandchild, or foster child (AmeriCorps members 55 and older)
• The education award, unlike most other forms of scholarships and fellowships, is fully taxable in the year it is redeemed.
• The education award should be viewed as a supplement to — and not a replacement of — existing forms of federal student aid. AmeriCorps program directors should encourage their members to apply early for any other financial aid by completing the free application for Federal Student Aid (FAFSA) in January or February of the year the member plans to attend college.  
• Financial aid offices are a good resource for meeting the costs of college; AmeriCorps programs should endeavor to invite financial aid office representatives to give presentations to members about how to correctly complete the FAFSA and search for local scholarships. College financial aid offices typically do this on a pro bono basis.
• Understand that neither the education award nor the living allowance should count toward a member's expected family contribution (EFC).
• Most students and parents do not generally understand the role of the FAFSA worksheets in the federal methodology (the formula used to determine a student's EFC). The 1998 Amendments to the Higher Education Act ensure that both the education award and the living allowance should be considered as excludable income, which is a tremendous benefit.
• In terms of eligibility for need-based financial aid, serving in AmeriCorps is analogous to having no income. This is one of the hidden ways that AmeriCorps has increased access to higher education. Program directors who have a basic understanding of this concept are further adept at recruiting potential members.

What should AmeriCorps programs know about taxation issues?

• Though it is beyond the scope of this practice to discuss taxation issues, program directors should know that taxation is somewhat of a factor in morale, and to a lesser extent recruitment and retention, of AmeriCorps members.
• Many members feel that they have been short-changed by CNCS regarding taxation. However, the decision to tax the education award does not fall with the jurisdiction of CNCS; rather, it is a determination made by the Internal Revenue Service. It's worth mentioning this fact to members so that they understand that CNCS is not disregarding their voices.
• Any money earned (or in the case of the education award, redeemed) between January 1 and December 31 serves as a member's tax base. One way that members have avoided singularly large tax bills is by redeeming half of their education awards in one year, and the other half of their education awards after January 1 of the following year. This approach can be applied whether paying for tuition or repaying student loans.

What about matching awards?

• There is no industry-wide standard when it comes to matching awards; some schools offer to match the amount of the education award, while some schools offer scholarships in set amounts that remain constant regardless of the amount of education award earned. Some institutions offer the scholarships on a continuing basis, while others offer one-time-only awards.
• In many cases, attending a college simply because it offers a matching scholarship may not introduce a financial benefit. If a college with tuition of $24,000 per year offers to match a member's $5,550 education award, that member would still be better off financially by attending her/his state college, where tuition may only be $5,000 per year.

The education award is meant to be a tool to help people achieve the dream of a higher education, not the means to that end in and of itself. Members would be better served by planning out their dreams and seeing how their education awards can help them get there.

Disclaimer: The recommendations in this practice are based on a quantitative survey and analysis of the federal regulations that govern financial aid. It is informed by both CNCS and Dept. of Education policies; however, it is intended only as a guide to ensure that AmeriCorps lives up to its ideal of educational opportunity — it does not represent a replacement of current CNCS guidelines or regulations. The practice is for informational purposes only and should not be considered official legal or financial advice. The sections in the U.S. Code that make all appropriate references to the AmeriCorps education awards are located within Title 20–Education.