The Benefits of Higher Education: Tax Options Explored
Earning a diploma is costly, time consuming, and hard work. Committed students usually
see their education through to the end, but at some point, funding tapers off and
money becomes an obstacle. Whether you are in your first year of college or your
fourth, there are tax benefits available to either you or your parents that can
significantly reduce the cost of college tuition. Investigating your options is
the only way to make sure that you are taking advantage of the tax benefits available
to you.
The Hope Credit, the Lifetime Learning Credit, Student Loan Interest Deduction,
and a Tuition and Fees Deduction are some of the main ways that students and parents
receive tax benefits. Each option has different advantages so it is important to
research each thoroughly so that you choose the most rewarding tax benefit. Below
is a summary of the information provided in
IRS Form 970. Note that there are exemptions for each option and eligibility
requirements that must fulfilled. If you are above a particular income bracket you
may not qualify for education deductions or credits.
Hope Credit
The Hope Credit allows students who claim themselves or parents of a college student
to claim a $1500 tax credit each year. This credit option is only available during
the first two years of post-secondary education. Students must be enrolled at part-time
or full-time status to qualify.
Note: The Hope Credit should not be confused with the Hope Scholarship which, although
another well-known source of college funding, is not tax-related. The Hope Scholarship
is a merit-based, lottery-funded, and state-dependent form of college aid. Once
known for being the Georgia Hope Scholarship, it has now spread to other states.
The South Carolina Hope Scholarship, Maryland Hope Scholarship, and Tennessee Hope
Scholarship funds are quickly gaining in popularity. If you are not from Tennessee,
perform a free scholarship search at Scholarships.com
to see if an award similar to the Tennessee Lottery Scholarship is available in
your state. If you are, conduct a free search because it's free and who knows what
other scholarships, grants or fellowships you might qualify for?
Lifetime Learning Credit
The Life Time Learning Credit allows eligible students to claim a $2,000 tax credit
each year. Unlike the Hope Credit, students can claim this credit throughout their
entire college career—be it 2 years or 6. Students must be enrolled in at least
one class to qualify.
Student Loan Interest Deduction
This reduction allows eligible participants to reduce their taxable income by $2,500
each year. The loan cannot be taken from a relative or employer and its purpose
must be purely educational. Interest paid throughout the life of the loan can be
deducted until the debt is absolved.
Tuition and Fees Deduction
This tax option can reduce your taxable income by up to $4,000. This deduction is
solely for tuition and fees; it does not include any other expenses associated with
school like room and board. For more detailed information about the tax benefits
of higher education, visit the
Internal Revenue Service website.