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EASING THE COST OF A COLLEGE EDUCATION 

 
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American Opportunity Tax Credit
Lifetime Learning Credit
Student Loan Interest Deduction
Tuition and Fees Deduction
Qualified Tuition Programs and 529 Plans
Coverdell Educational Savings Accounts
Regular Student Employment
Attend a School with a “No Loans” Policy
Private Scholarships
Cooperative Education
AmeriCorps
Work for a Company that Pays College Costs
Handicapped Students


Individuals and families who pay college tuition, fees, and other related expenses may be eligible for a tax break on their federal income tax. This section describes various programs and tax benefits that may make higher education more affordable for many families. This information is meant as a guide only. For more detailed information on all the tax benefits outlined below, consult your tax professional or refer to IRS Publication 970, Tax Benefits for Higher Education, available online at www.irs.gov or by calling the IRS at 800-829-1040. Copies of the publication may also be available in your local library, guidance office, or post office.

American Opportunity Tax Credit (modifies Hope Scholarship)


The American Opportunity Tax Credit (AOTC) which was to expire at the end of 2012, was extended through December 2017 by the American Taxpayer Relief Act of 2012. As a modification of the Hope Credit, the AOTC makes education tax credits available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. In addition to tuition paid it also adds required course materials, such as books and supplies, to the list of qualifying expenses and allows the credit to be claimed for four postsecondary years instead of two.

Under the AOTC a taxpayer will be able to reduce his/her tax liability one dollar for each dollar of eligible credit. If the amount of the American Opportunity Tax Credit for which the taxpayer is eligible is more than the tax liability, the balance of the credit is refundable, up to a maximum refund of 40 percent of the amount of the credit for which the taxpayer is eligible. The maximum annual credit will be $2,500 per student. The full credit is available to individuals whose adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return.


Lifetime Learning Credit


For families of students in junior and senior year, or graduate school (as well as adults returning to school) a tuition tax credit is allowed, equal to 20 percent of the first $10,000 paid in tuition and fees, or $2,000. Benefits are phased out for individuals with adjusted gross income (AGI) between $50,000 and $60,000 and joint filers with AGI between $100,000 and $116,000.


Student Loan Interest Deduction


Interest paid on student loans will now be considered a tax deduction. This benefit comes in the form of an adjustment to income, meaning you do not need to itemize on your tax return in order to be eligible. The deduction can reduce taxable income by up to $2,500. The deduction is phased out for single tax filers with adjusted gross incomes of $60,000 to $75,000; $120,000 to $150,000 for joint filers.


Tuition and Fees Deduction


Taxpayers can deduct up to $4,000 in tuition expenses as an exclusion from income. This means itemizing deductions on schedule A of the 1040 is not necessary. The deduction is phased out for taxpayers with adjusted gross incomes of $65,000 to $80,000 (single filers) and $130,000 to $160,000 (married filing jointly). The Limited Deduction can be used in conjunction with tax-free distributions from Coverdell Education Savings Accounts, qualified tuition programs, and education savings bonds, provided that different education expenses form the basis for each benefit. The deduction cannot be used if the AOTC or Lifetime Learning tax credit is applied for the same student in the same year.


Qualified Tuition Programs and 529 Plans


A qualified tuition program (QTP) is one in which the contributor (a student’s parent, grandparent or other individual) prepays college tuition to an eligible educational institution or contributes to an account established for the purpose of paying qualified educational expenses. Earnings accrued on the QTP that are used to pay qualified educational expenses including tuition, fees, books, supplies, equipment, and room and board (student must attend at least half-time) are free from federal tax and in some cases from state taxes as well.

Contributions to a QTP cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. There are no income restrictions for this program.


Coverdell Educational Savings Accounts


Coverdall Accounts are funds established exclusively for higher education expenses (including tuition and fees, books, supplies and some room and board expenses) for individual children under the age of 18. Contributions must be made “after taxes.” However, earnings accumulate tax free and no taxes are paid on withdrawals provided they are used for higher education expenses. The maximum contribution is $2,000 per year. (Families of military personnel killed in action may contribute 100 percent of survivor benefits.) The benefit is phased out for single filers with adjusted gross incomes between $95,000 and $110,000, and for joint filers with adjusted gross incomes of $190,000 to $220,000.


MORE MONEY FOR COLLEGE


Regular Student Employment


In addition to the Federal College Work-Study Program, many colleges employ students directly. Students work in all phases of the college, often working at the same type of jobs as students in the Work-Study Program. In many instances, however, there is no financial need requirement, and jobs are open to any student who wishes employment, regardless of his or her financial circumstances.

Students should also consider part-time work in local business and industry. Often the Director of Financial Aid or the Placement Office will help students to find such off-campus employment.


Attend a School with a “No Loans” Policy


A handful of schools have instituted policies that ensure that low income students have no loans in their financial aid packages. These are also referred to as “free tuition” programs for low income students. Typically low income refers to family incomes below $40,000, students who are Pell Grant eligibile, or families with incomes below 200 percent of the poverty line.

The no loans policy eliminates loans from the financial aid package, meaning that there will be no offer of Stafford, Perkins, or other institutional loans in the student’s financial aid award. Instead, the student will receive increased institutional grants. This practice allows the student to graduate form college debt-free.

Currently the no loan policy is in effect at only a small number of competitive colleges, including most of the Ivy League institutions. Students and families should be aware that the policy does not cover the estimated family contribution (EFC) as determined by the FAFSA. Therefore, the student’s family may require loans to cover their portion of the student’s tuition.
For additional information contact the college financial aid office or visit www.finaid.org.


Private Scholarships


A number of scholarships are made available each year by many local groups, such as labor unions, veterans groups, businesses, professional organizations, fraternal societies, benevolent organizations, high schools, and church groups. A good Web site to consult for all types of scholarships is www.fastweb.com. You can also start your search at www.finaid.org or www.collegeboard.com, or consult your high school counselor.


Cooperative Education


Under this program, the student alternates periods of study with periods of work directly related to his or her academic interest. The salary earned during work periods enables the student to pay a major part of college expenses. More colleges each year are participating in this program.

WACE (World Council and Assembly on Cooperative Education) is a resource of information and assistance to schools, employers and governments that want to initiate or strengthen Cooperative & Work-Integrated Education programs. This organization also offers scholarships to students who attend partner schools. For more information visit www.waceinc.org, E-mail Marty_Ford@uml.edu or write to WACE, 600 Suffolk Street, Lowell, MA 01854.


AmeriCorps


AmeriCorps is a national service project that works with nonprofit organizations/agencies and educational institutions to operate local community service programs. AmeriCorps volunteers have served across the country to address the most pressing education, public safety, human and environmental challenges facing our communities. Volunteers who have completed 1,700 hours (one year) of service are eligible for a Segal AmeriCorps Education Award. The award amount is tied to the maximum amount of the U.S. Department of Education’s Pell Grant, which is currently $5,550. The award may be used to repay educational loans for those who have attended college or may be used for future educational costs by volunteers who have not yet attended college. AmeriCorps participants may also qualify for the new Public Service Loan Forgiveness Program and the Income-Based Repayment Plan. As an added benefit, there are currently 94 colleges and universities nationwide that offer matching grant programs to students who are Segal AmeriCorps Education Award recipients.

For information about volunteer opportunities and benefits and a list of schools participating in the matching grant program visit www.nationalservice.gov, or call 800-942-2677. You can also contact the state or local project office.


Work for a Company that Pays College Costs


Many large corporations have tuition payment plans for their employees. Plans vary from company to company. Some firms will advance monies needed for tuition, others will reimburse costs after the student completes each course or semester. Reimbursements vary from 100 percent to a portion of the total tuition, with some reimbursements contingent on the employee/student’s final grade. In some cases, a company will pay only for courses directly related to the job.

When interviewing for a job, be sure to ask about the firm’s education funding plan.


Handicapped Students


Handicapped students who are eligible for routine help from the rehabilitation agency within their state are usually eligible for substantial financial assistance to pursue higher education. Such students should contact their rehabilitation counselor for more detailed information.


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