The Cost of a College Education
Paying for college can be an extraordinary expense,
but there are ways to do it.
|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 $8,655 for the 2012-2013 school year, and at private not-for-profit ones it
was $29,056. 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.
|*Source: The College Board, Trends in College Pricing, 2012. (Percentages for various costs are approximate.)
In 2013, you may qualify for an American Opportunity tax credit (AOC), 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
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 AOC tax credits.
You're eligible for the full amount of these credits - up to $2,500 AOC and up to $2,000 lifetime
learning credit - if your modified adjusted gross income is $80,000 or less and you file your
tax return as a single filer, or $160,000 or less if you file a joint return. The credits are
phased out gradually and then eliminated at $90,000 for single filers and $180,000 for joint
returns. 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.
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
35% 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.
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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