My Situation:

I am a first year graduate student. I have recently been awarded a
graduate research fellowship for $22,000. It is a replacement for
personal income, I cannot have any other employment income or
appointments.

I also filed the FAFSA earlier this year, and have recently been
awarded by my school a package of student loans for $18,000 (which
totals the estimated cost of attendance).

I filed the FAFSA before I knew about my fellowship award.

What I know:

One: My fellowship is NOT affected by my acceptance of non-earned
income, like student loans. Two: I have been told by secretaries at my
financial aid office that my fellowship ?shouldn?t affect? my loan
award. I've already begun the process of "accepting" the $18,000, but
I'm having second thoughts about this.

My Question:

Do I need to refile a FAFSA? How dire could the consequences be if
this fellowship isn?t officially reported?  Is there any clever way I
moderate the amount that my loan award is reduced if/when my
fellowship is reported?

I would really like to take advantage of this opportunity to use these
low interest loans to fund the building of a small cabin (I go to
school in Fairbanks Alaska, so this is a real possibility). I'm tired
of paying rent in a location where $20,000 can build a cabin nearly
equivalent the one for which I'm paying $400/month in rent!

Please make the answer as complete (and CLEVER!) as possible. If you
need additional information or clarification to help you address my
question, please post a comment. Thanks.

There is good news and bad news.  The good news is that you do not
have to refile your FAFSA.  The bad news is that not disclosing your
fellowship would mean tax evasion, fraud and/or perjury--depending on
how you chose to conceal it.

Your FAFSA for AY04-05 is based on financial (tax) information from
tax year 2003.  Your fellowship would not have any bearing on your
award package until AY05-06.

You must report you fellowship to the IRS, and you must accurately
fill out your FAFSA.  There is no way around it. However, Question 42,
worksheet C of the FAFSA asks what portion of your income is earned
through scholarship, fellowship, work study etc.  I would ask the
financial aid office if the reported figure is excluded when
calculating your EFC (expected family contribution) or reduced by some
formula.

BUT! What you plan to do with the loans is fraudulent.  Fraud is a crime.       

Just some excerpts from your MPN?. 

13. Under penalty of perjury I certify that:
B. I will immediately repay any loan proceeds that cannot be
attributed to educational expenses for attendance on at least a
half-time basis at the school that certified my loan eligibility....

....My signature certifies I have read, understand, and agree to the
terms and conditions of this MPN, including the Borrower
Certifications and Authorizations printed above, the Notice About
Subsequent Loans Made Under This MPN, and the Borrower?s Rights and
Responsibilities Statement.

Borrower's Rights and Responsibilities
6. Use of Loan Money ? I must use the loan money for authorized
educational expenses for attendance at the school that certified my
eligibility for the time period shown on my disclosure statement.

Aside from being criminal, deceiving (abusing) a program that already
struggles to help the ever growing number of students is simply
immoral.


I will not lie, cheat or steal in my personal or academic endeavors,
nor will I tolerate such actions from others.   ?Not a sermon... Just
a thought!?

Much of what soulsister says is true, but . . . depending on your
circumstances and the details, there may be nothing fraudulent about
using loans toward the cabin.

You're allowed to use low-interest student loans (Stafford, PLUS,
private, etc.) toward living expenses, car payments, health insurance,
etc.  Right now you're paying $400/month to rent, and conceivably you
could be spending $1000/month to rent.  There's no reason you couldn't
use the loan toward essentially making a monthly mortgage payment
instead of a rent payment.

Additionally, much of this would be murky anyway, b/c your fellowship
plus loan money is going to go into one big single pot after tuition
is paid (and the rest is returned to you by the school).  You could
say you're using your "fellowship" money toward the cabin and use the
"loan" money toward tuition, non-mortgage/rent living expenses, etc.

I'm a law student, and I've known other law students who've made $20k+
in summer associate jobs to use that toward tuition and still take out
$30k+ in low-interest loans to use toward buying houses, cars, etc. 
If that were to sound sketchy that way, swap it around to using loans
to cover school and the summer associate salary toward the house and
cars.  Either way the money's in a pot, and as long as valid
educational expenses (tuition, fees, food, lodging, gas, car payments,
insurance etc.) are greater than whatever the restricted funds are (in
this case, the loans are the restricted revenue with, I'm guessing,
the fellowship being unrestricted), you can legally and ethically use
the unrestricted funds however you like.

--Joey