The Housing Opportunity Through Modernization Act (HOTMA) updated the rules on counting student financial assistance as income. HOTMA mandates the exclusion of earned income for full-time dependent students and the exclusion of certain financial aid for both full and part-time students. The rules are designed to not penalize students for receiving help that pays for school.

We’ll break down the new HOTMA methodology, explain the two categories of student financial assistance, and show you how to calculate what counts as income. We’ll also go over considerations for applicants with Section 8 assistance versus those without.

Two Categories of Student Financial Assistance Under HOTMA

HOTMA separates student financial aid into two categories, because each is treated differently when calculating income. The first category is any assistance that Section 479B of the Higher Education Act of 1965 requires to be excluded from a family’s income. The second category is any other grant-in-aid, scholarship, or other assistance amounts an individual receives for the actually covered costs charged by the institute of higher education.

Higher Education Act (HEA) of 1965 Assistance (Title IV Aid). This is basically federal student aid. It includes programs like Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), TEACH Grants, federal work-study earnings, Federal Perkins Loans, direct student loans (e.g. Stafford loans), and similar aid funded under Title IV of the HEA. It also covers certain aid from the Bureau of Indian Education and specific workforce training programs. In short, think of this category as federally funded student assistance such as grants, loans, or work-study provided through the U.S. Department of Education (plus some tribal and workforce programs).

“Other” student financial assistance. This includes basically any other source of educational funding a student might get. Examples include scholarships or grants from state or local governments, financial aid from a college or university, or awards from private organizations or nonprofits. Even a scholarship from a local business or a foundation would fall in this category. In some cases, even cash assistance from parents or other private sponsors for education could be considered “other” assistance. If it’s not a Title IV federal program, it likely belongs in this second category.

How Student Aid Affects Income Calculations

Under HOTMA’s rules, the way we count a student’s financial aid as income depends on which category the aid falls into. HEA (Title IV) assistance is entirely excluded from the household’s income calculation. It doesn’t matter if the student is full-time or part-time, or how much of this aid they receive – it’s not counted against them.

“Other” student assistance is excluded from income only up to a point. Specifically, it's excluded up to the amount of the student’s actual education costs that aren’t covered by the HEA aid. If those other scholarships and grants exceed the student’s education expenses, the excess amount does count as income. In simpler terms, other aid is meant to cover school costs, and you don’t count it as income as long as it’s needed for those costs. But any portion of those non-federal awards that goes beyond paying the tuition, fees, and other required education expenses will be treated as income for eligibility purposes.

Education costs include things like tuition and required fees, and under HOTMA they also include reasonable costs for books, supplies, and room and board. These are essentially the components of the school’s cost of attendance. The HOTMA rule basically ensures that student aid used for these necessary costs is not counted as income, only aid beyond that might be.

Calculation Method for Non-Section 8 Students

For students who don't receive Section 8 rental assistance, HOTMA uses a two-step calculation to figure out if any of their financial aid should count as income. This same two-step method also applies to students in public housing and other non-Section 8 HUD programs. Here’s how you do it:

Step 1: Exclude all HEA Title IV assistance first. Completely ignore any financial aid that falls into the HEA category such as Pell Grants, federal student loans, or federal work-study wages. None of this will count as income. However, you do want to note how much HEA aid the student receives, because you’ll use it to offset education costs in the next step.

Step 2: Determine the student’s remaining education costs after applying HEA aid. Take the student’s total actual education costs (tuition, fees, books, supplies, room and board, etc.) for the year, and subtract the amount of HEA assistance from step 1. This tells you if the student still has any uncovered costs. If education costs exceed the HEA aid, there will be a remaining cost amount. If the HEA aid was enough to cover (or exceed) all costs, then there’s no remaining cost. In fact, if HEA aid exceeds costs, you can consider the remaining cost to be $0 for the next step.

Step 3: Apply “other” assistance to the remaining costs. Now look at any other scholarships or grants the student might have. This other aid can also be excluded, but only as much as needed to cover any remaining education costs you found in Step 2. In practice, you subtract the “remaining cost” from the total “other” assistance amount.

If the student’s other scholarships are equal to or less than the remaining costs, then all of that other aid is used up by education expenses and none of it counts as income. And if the other aid exceeds the remaining costs, then the portion above and beyond what was needed for school costs is considered income for eligibility. Only that excess amount will be added to the household’s income figure.

Example. A student’s total education expenses (tuition, fees, books, etc.) for the year are $18,000. She receives two forms of aid:

• A $10,000 Federal Perkins Loan
• A $10,000 private scholarship from a local foundation

First, we note that her $10,000 Perkins loan is HEA assistance, so we don't count that as income at all. Loans are also generally not counted as income in any case, since they must be repaid, but HOTMA explicitly excludes Perkins and other Title IV assistance regardless.

Her total costs are $18,000. After applying the $10,000 from her Perkins loan, she still has $8,000 in uncovered education costs ($18,000 – $10,000 = $8,000 remaining need). We then consider other aid coverage. She also has a $10,000 scholarship. This scholarship can cover the $8,000 gap in her costs. After using $8,000 of the scholarship to pay the remaining expenses, there is $2,000 of scholarship aid left over that is not needed for school costs.

Under HOTMA’s rule, the $8,000 portion of the scholarship is excluded (since it went toward actual costs), but the $2,000 excess is counted as income for her household. Though she received significant financial help, only a small portion ends up counting against her income eligibility (because it exceeded what her education actually cost). If her aid had been less than or equal to $18,000 in total, none of it would count as income.

Students with Section 8 Assistance 

For a student who receives Section 8 rental assistance, HOTMA’s default two-step method applies to Section 8 students only if they meet certain conditions. Otherwise, the pre-HOTMA rule applies. In practical terms, this means you may need to use a single-step calculation for some Section 8 student households.

HUD appropriations have typically a provision that for Section 8 students who are age 23 and under or without dependent children any amounts received in excess of tuition and any other required fees and charges shall be considered income. In other words, the general rule for Section 8 students is that if an applicant is receiving Section 8 assistance and is not an independent student (as defined by HUD rules), you must include any student financial assistance that exceeds tuition and required fees in their income. This means you add up all sources of the student’s financial aid (both HEA and other), then subtract the amount of tuition and mandatory fees/charges for their schooling. Any amount over those tuition/fee costs is counted as income. Essentially, in this scenario, all grants or scholarships beyond the tuition bill are treated as income, even if they were from a Pell Grant or other HEA source.

A couple of important exceptions. If the Section 8 student is truly independent--for example, 24 years or older with dependent children--or if the student is living with their parents who are the ones receiving Section 8 assistance, then you don't use the general rule. In these cases, you treat the student’s aid just like any other applicant’s. You would exclude all HEA aid and only count “other” aid beyond the actual full costs of education. In other words, older students with kids or Section 8 students living with a parent/guardian get the benefit of the more lenient HOTMA two-step calculation, rather than the stricter tuition-and-fees or excess over tuition method.

Example. A 20-year-old college student has a Section 8 voucher. He has $27,000 in tuition and mandatory fees for the year. He receives a $30,000 Pell Grant and a $3,000 scholarship from a local business, for a total of $33,000 in aid. Since he is under 24 and has no children, he falls under the stricter Section 8 rule. To calculate his income, we add up all his aid ($33,000) and subtract his tuition/fees ($27,000). The result is $6,000. This is the amount that will count as income.

However, if he was 24 years old and had a dependent child, or if he were living with his mom who is the voucher holder, we would not use the single-step rule. In that case, we’d treat him like a non-Section 8 student and do the two-step method. Using the same numbers, we’d exclude the Pell Grant entirely, then see that his $27,000 tuition is entirely covered. Since there is an additional $3,000 scholarship from a local business, we compare it to the remaining uncovered education costs. Since the Pell Grant already covers all costs, the entire $3,000 scholarship counts as income.  

Download our MODEL FORM below to Gather Educational Cost and Aid Information. Use this form to gather documentation of the student’s educational costs and aid. You’ll need to know the tuition and required fees and ideally other cost-of-attendance items if using the two-step method and the amounts of each source of financial assistance.