The HEA specifies in Section 480(b)(4) that these benefits are not reported on Worksheet B of the FAFSA. These benefits are generally considered to be resources. All other veterans benefits, such as income earned from the Veterans Affairs Student Work-Study Allowance Program (VASWSAP) and veterans noneducation benefits (e.g., Disability, Death Pension, or Dependency & Indemnity Compensation (DIS)) should be reported in Worksheet B of the FAFSA as untaxed income.

Note that although veterans education benefits are not reported on Worksheet B, there is a special question on the FAFSA that asks about veterans education benefits. This question asks for the number of months of benefits and the amount per month. (A common error is to report the annual amount of benefits, as opposed to the monthly amount. If the monthly amount varies, calculate the monthly figure by dividing the annual figure by the number of months of benefits.) The answer to this question does not affect the EFC.

It is important to understand whether a benefit is treated as a resource or as income. Resources reduce need-based financial aid dollar for dollar. So if you include a resource as income on the FAFSA, you will be penalized twice: once by having it increase your Expected Family Contribution (EFC) and once by having the resource reduce your Federal student aid eligibility.

Much of the discussion of veterans education benefits occurs in the sections that deal with overawards. Overawards occur when the total of a student's financial aid and resources exceeds his or her demonstrated financial need. When an overaward occurs, the school is required to reduce the financial aid package to compensate. This is basically a fancy way of saying that every dollar that is classified as a resource reduces the student's need-based financial aid by a dollar.

The overaward regulations for Title 34 (Education) concerning General Provisions for the Federal Perkins Loan, FWS, and FSEOG Programs specify that resources include any veterans education benefits paid under US Code Title 38, Chapters 30, 31, 32 and 35. (See 34 CFR 673.5(c)(1)(ix).) This includes the Montgomery GI Bill benefits. However, an exception is made to not count as resources any veterans education benefits that were included in the calculation of the student's expected family contribution (EFC). (See 34 CFR 673.5(c)(2)(i).)

In addition, the regulations specify that the college may exclude as a resource any portion of a subsidized Stafford Loan that is less than or equal to the amount of the student's Montgomery GI Bill benefits. (See 34 CFR 673.5(c)(3), 682.200(b)(2)(iii), and 685.102(b)(2)(iii). This follows Section 428(a)(2)(C) of the HEA, which indicates that Montgomery GI Bill benefits are not considered estimated financial assistance.)