Aid and Other Resources From the Federal Government
The federal government offers several other financial aid programs besides the U.S. Department of Education (ED) aid. These programs include:
Tax Benefits for Higher Education
Tax benefits can be used to receive back some of the money you spend on tuition or loan interest or to maximize your college savings. Many families plan to use a savings plan, like a 529 Education Plan, or other tax benefits to assist their students in school. It is important to note that this is not a financial aid award but money paid to the family through the annual tax cycle - not when the bill is due.
For more information, read IRS Publication 970, Tax Benefits for Education, to see which federal income tax benefits may apply, or visit studentaid.gov.
Tax Credits
Two tax credits help offset the costs (tuition, fees, books, supplies, equipment) of college or career school by reducing the amount of your income tax:
- The American Opportunity Credit can be used each year for the first four years of school as the student works toward a degree. The credit allows up to $2,500 per year for money paid toward tuition, enrollment fees, course-related books, supplies, and equipment needed for attendance but not paid to the college directly. It does not cover housing and meals. Students must be enrolled at least half-time to be eligible.
- The Lifetime Learning Credit allows the student, the student's spouse, or the student's family to claim up to $2,500 per year per household. The credit can be used for any college or career school tuition and fees, as well as for books, supplies, and equipment that were required for the course and had to be purchased from the school. The same student cannot claim the credit if they have claimed a different tax credit within the past year of claiming the Lifetime Learning Credit.
Coverdell Education Savings Account
A Coverdell Education Savings Account allows up to $2,00 a year to be put aside for a student's education expenses (elementary, secondary, college, or career school).
IRA Withdrawals for College Costs
You may withdraw from an IRA to pay for higher education for yourself, your spouse, your child, or your grandchild. Federal income tax will be owed on the amount withdrawn, but you will not be subject to the early withdrawal penalty.
Qualified Tuition Programs (QTPs, also known as 529 plans)
A QTP/529 plan is established by a state or school so that you can either prepay or save up to pay education-related expenses. Once a student is in college, a family can withdraw money from their account to pay for education expenses. The money withdrawn will not be taxed. To learn more about state 529 plans, please visit collegesavings.org.
Student Loan Interest Deduction
A tax deduction can be taken for the interest paid on student loans that were taken out for yourself, your spouse, or your dependent. The benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
