Paying for college can be an extraordinary expense, but
there are ways to do it.
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There's no question that the cost of college can be intimidating,
especially if you have more than one child. In fact, the average tuition and fees
for in-state students at public institutions was $10,230 for the 2018-2019 school
year, and at private not-for-profit ones it was $35,830. But paying for college
may be more manageable than you assume if you plan ahead. You can also investigate
a number of ways to control the cost.
COMPARING COSTSWhile tuition may
be the largest single expense of attending college, it isn't the only one. Whether
students live on campus or commute from home, they must pay for books, food, transportation,
and other expenses - many of which aren't covered by scholarships or loans.
While these costs apply no matter where your child attends, you'll find that
they vary, just as tuition does, from school to school. You may want to ask your
child to weigh those differences in making his or her final decision, along with
choices between a rural or urban campus and a large school or a small one.
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*Source: The College Board, Trends in College Pricing,
2018. (Percentages for various costs are approximate.)
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TAXPAYER RELIEF In 2019, you may
qualify for an American Opportunity Tax Credit (AOTC), an enhancement of the Hope
tax credit, for money you spend on a child's educational expenses if he or she
is enrolled at least half time in a qualified higher education institution and pursuing
a degree or other credential. Qualified institutions include liberal arts colleges,
universities, and vocational, trade, or technical schools. You may take the credit
for your own expenses or those of your spouse, with the same conditions.
In addition, you may qualify to claim a
lifetime learning credit
of up to $2,000 each year for other qualified higher educational expenses, including your own. The course
work doesn't have to be part of a degree-granting program, though it can also be used for postgraduate
or professional studies. You can take both credits in the same year, but not for the same person.
You can take only one lifetime learning credit per year, even if you are paying
for more than one person's education. But if two students are enrolled in post-secondary
school at the same time, you can qualify for two AOTC tax credits.
You're eligible for the full amount of these credits - up to $2,500 AOTC and up to $2,000 lifetime learning
credit - if your modified adjusted gross income falls within the limits set each year and available in IRS Publication
970. These income ceilings may increase gradually to reflect inflation.
As an alternative, you may be able to take an above-the-line deduction for qualified
higher education expenses you pay for a qualifying student during the year. You're
eligible for a maximum deduction of $4,000 if your
adjusted gross income (AGI)
isn't more than $80,000 if you file as a single taxpayer, or $160,000 if you file a joint return.
Above those income levels, you don't qualify for the deduction. To claim the deduction, use IRS Form 8917.
You can get more information on all the tax benefits you may qualify
for on the IRS website (www.IRS.gov)
or in IRS Publications 553 and 970.
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SAVING IN A CHILD'S NAME Any adult can save for college by opening a
custodial account in a child's name under the
Uniform Gifts to Minors Act (UGMA) or
Uniform Transfer to Minors Act (UTMA). However, taxable earnings
are taxed at the parents' rate until the child turns 19, or 24 if he or she
is a full-time student.
One advantage of an UGMA or UTMA is that you as the donor or the
person you name to oversee the account can choose how to invest the
assets in the account, and you can move assets you own into the account
without having to sell them, which might result in a potential
capital gains tax.
But the strategy can backfire if the child applies for financial aid. That's
because UGMAs and UTMAs are assets of the child and most financial aid formulas
require students to contribute approximately 20% of their savings toward college
costs, while parents are required to supply less than 6% of theirs. The other drawback
is that once the child reaches the age of majority (18, 19, 21, or 25 depending
on the state and the type of account), he or she has the right to assume control
of the account and spend the money.
WHAT'S AVAILABLE? If you don't
have as much as you need to pay for higher education, schools may offer your child
a package of aid:
- Scholarships or grants, which do not have to be repaid.
- Loans, which must be repaid, but usually not until
after graduation. Working in certain jobs or locations can reduce the loan or postpone
repayment.
- Work/study grants, which pay the student for work
done on campus during the school year. Sometimes earnings are deducted from tuition
and other times the student earns a salary.
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