The federal work-study program is a type of financial aid that students who fill out the Free Application for Federal Student Aid, or FASFA, can receive. The federal government gives the money to the school, which then uses it to pay the student recipient for on-campus work. Having a work-study job can affect the unemployment compensation you receive from your state.

Qualifying for Unemployment

Work-study is only available to students who are enrolled at least half time in a program of study. However, most states require that you be available and looking for full-time work to receive unemployment compensation. Therefore, unless you are taking your classes online or outside of normal work hours for your area of expertise, returning to school could entirely disqualify you from receiving unemployment benefits. On the other hand, some states allow you to stop looking for work for a time if you are in an educational program that makes you more employable.

Federal Work-Study

Unlike most other types of financial aid, you receive work-study aid as wages for working a job. Both the IRS and your state's unemployment agency consider your earnings from your work-study job to be income. Therefore, you must report your work-study earnings to the state when you file for your unemployment check each week.

Reduction of Benefits

Depending on how much you earned and what the state's rules are, you might receive a smaller amount in your check each week you work. Often, you can earn up to a specific percent of your usual check without penalty, after which point your earnings reduce your check dollar-for-dollar. For example, say you get $200 per week in unemployment compensation and live in a state where you can earn 30 percent of your check without penalty. In this case, the first $60 of your work-study earnings each week does not affect your check, but every dollar after that reduces your check by a dollar.

Bottom Line

Before you go back to school, discuss your enrollment in college and your potential federal work-study earnings with an employee at the unemployment agency in your state. Several factors, including the state's policies, your current level of unemployment benefits and the program of study you are going to enroll in, affect whether or not you will continue to get unemployment benefits while you are enrolled and have a work-study job. Even if you will lose your unemployment benefits, going back to school could be a wise career choice and there are many types of financial aid that can make it affordable for you.