Free Application for Federal Student Aid (FAFSA)

Federal Student Aid, a part of the U.S. Department of Education, is the largest provider of student financial aid in the nation. At the office of Federal Student Aid, our 1,200 employees help make college education possible for every dedicated mind by providing more than $150 billion in federal grants, loans, and work-study funds each year to more than 13 million students paying for college or career school. We are proud to sponsor millions of American minds pursuing their educational dreams.

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Parents and Families

Preparing Your Child for College

2) Begin researching and planning your child’s college budget.

Parents who start the college planning process early have an advantage. They can help their teen begin to gain confidence freshman year, knowing that they have a sound financial plan in place to pay for their education.

• In 2011, the average price for tuition, room, and board for a college freshman rose to $13,600 at public institutions and to $36,000 at private non-profit universities — an increase of more than a third since last year, according to the National Center for Education Statistics.
• “If you do the right research upfront, then you are going to pick a school that not only has our child’s best interest at heart but also has a substantial financial aid package,” said Scott Weingold, a national college financing expert.
• Parents and students should work together to identify potential scholarships and monitor deadlines for the awards. The bulk of college scholarships are reserved for high school seniors, however, students can begin earning money sooner.

3) Understand the Cost

College is expensive. But it’s an investment that pays off over a lifetime. If you don’t know how you or your child will pay for it, that is normal. Many families are in the same situation. Colleges have entire departments dedicated to helping students and families understand the cost of college and their payment options (the financial aid office). In fact, there are many ways to pay for college.

• How much will college cost?
  Colleges come in all shapes and sizes, and the costs vary just as much. Actually, tuition is only a portion of the expense. To get a full understanding of the cost, visit a college’s website and look for their “estimated cost of attendance” (COA), or you can find more information on this site.
• Who should we talk to about financial aid?
  For starters, visit with your child’s high school counselor. Some high schools or organizations also offer financial aid fairs. These are great opportunities to visit with a person from a college who deals with admissions or financial aid. This site also has some great information on financial aid.
• What is the FAFSA?
  The Free Application for Federal Student Aid (FAFSA) is the form that students and families complete to apply for financial aid, including grants, loans, and work-study. There are sections of the form that are for parents. And they’ll require your income and tax information. Find out more here.
• How does my child get a grant or scholarship?
  When possible, you want to get both. Grants and scholarships are free money that doesn’t have to be repaid. There are many types of grants. To see if your child qualifies for a grant, start with the FAFSA. Scholarships typically have their own application process. Research the many types of scholarships and see which ones your child has a chance to win. This site offers a scholarship search tool to help. You can also visit with your child’s high school counselor about options through your school.
• Will my child have debt when they graduate?
  That’s a big question, and there are many variables. Once your child narrows the list of colleges they are interested in, they should compare the costs for each school, including tuition, living expenses, fees, and transportation if the school is a long way from home. You or your child should also visit with a representative from the college’s financial aid office. They’ll be able to estimate the total cost. Depending on the cost to attend the college, the amount of financial aid received through the college, and scholarships received outside the college, it is possible that loans will not be needed.
• What is a PLUS loan?
  PLUS loans are federal loans that parents can use to help pay for college for their child. The parent takes out the loan and is responsible for repayment.

4) Choosing a college

• Know your options
  Not all colleges are the same. Depending on the career path your child is pursuing, sometimes a community college or vocational school is a better option than a four-year college. Talk to your child about what they want to do after college, or schedule some time with your child’s high school counselor about the types of schools that best match your child’s interests. Visit this site for more information about preparing for college.
• Tour a college
  Most colleges host organized tours for high school students. They give students and families a chance to see the campus and hear from college students as well as college staff. Tours are a great way to get a feel for a school. Contact the college to schedule a tour. Or most colleges allow self-guided tours whenever you want.

5) Don’t worry, detachment is part of growing up.

If you have done a great job helping your child mature, don’t be offended if they detach from you a bit now that they are in high school. Let them explore their surroundings without feeling guilty.

“They are testing a sense of independence that they have never experienced before,” explained Catalina Hernandez, a retention coordinator in the Illinois College Advising Corps. “Give them time, they will need you again and they will reach out.”

Source

Tax Benefits

Overview of Education Tax Benefits

Students and their families can get money for college by filing their federal income tax returns. These education tax benefits include tax deductions and tax credits for college savings, tuition and fees, scholarships, employer tuition assistance, and student loan interest. Tax deductions reduce the amount of income that is taxed, while tax credits directly reduce the amount of taxes paid.

Most of the tax deductions are above-the-line exclusions from income, which reduce the taxpayer’s adjusted gross income (AGI). Taxpayers can claim these deductions even if they don’t itemize. The reduction in AGI may help them qualify for other tax benefits and for more need-based financial aid. Thus an exclusion from income may provide both direct and indirect financial benefits. Other tax deductions are below-the-line or itemized deductions that reduce the amount of taxable income.

Some of the tax credits are refundable and some are not. When a tax credit is not refundable, the tax credit is capped at the taxpayer’s tax liability.

Most of the education tax benefits are restricted to taxpayers who file federal income tax returns as single or as married filing jointly. Married taxpayers who file separate federal income tax returns are not eligible.

Picking the best mix of education tax benefits can be complicated, in part because of Internal Revenue Service (IRS) rules that prevent double-dipping. Taxpayers can’t use the same educational expenses to justify more than one education tax benefit.

Summary of Education Tax Benefits

A summary of the various education tax benefits appears in the following tables.

TAX BENEFIT	BENEFIT AMOUNT	ELIGIBLE EXPENSES	INCOME PHASEOUTS
American Opportunity Tax Credit	$2,500 tax credit per student 100% of first $2,000 25% of second $2,000 Limit: First 4 years of postsecondary education Must be degree-seeking, enrolled >= half-time 40% refundable ($1,000), not subject to AMT Reverts to Hope Scholarship after the end of 2017	Tuition, fees, and course materials (such as textbooks, supplies, and equipment)	2014 Tax Year $80,000 to $90,000 (single) $160,000 to $180,000 (joint)2015 Tax Year Unchanged
Lifetime Learning Tax Credit	$2,000 tax credit per tax return 20% of first $10,000 Unlimited number of years Does not need to be degree-seeking	Tuition and fees	2014 Tax Year $54,000 to $64,000 (single) $108,000 to $128,000 (joint)2015 Tax Year $55,000 to $65,000 (single) $110,000 to $130,000 (joint)
Tuition and Fees Deduction	$4,000 exclusion from income Reduced to $2,000 in income phaseout band Unlimited number of years Expires after the end of 2014	Tuition, fees and, if required by and paid to the school, textbooks, supplies, and equipment.	2014 Tax Year $65,000 to $80,000 (single) $130,000 to $160,000 (joint)2015 Tax Year Unchanged
Employer Tuition Assistance	$5,250 exclusion from income per employee Unlimited number of years Does not need to be degree-seeking	Tuition, fees, books, supplies, equipment	None
Business Deduction for Work-Related Education	Exclusion from income for qualifying work-related education expenses greater than $5,250 if the expenses are a working condition fringe benefit. The education must be required by the employer or law to keep a present job, salary, and/or status, but cannot be necessary to meet minimum educational requirements of present trade or business or to qualify an employee for a new trade or business. An unlimited number of years.	Tuition, fees, books, supplies, equipment, transportation, travel	None
Tuition Gift Tax Exclusion	Tuition paid directly to a college or university is not subject to gift taxes. May be treated as untaxed income to the student on the FAFSA, affecting eligibility for need-based financial aid. Unlimited number of years	Tuition only	None

TAX BENEFIT	BENEFIT AMOUNT	ELIGIBLE EXPENSES	INCOME PHASEOUTS
Student Loan Interest Deduction	$2,500 exclusion from income for interest on federal and private student loans Unlimited number of years	Student loan interest	2014 Tax Year $65,000 to $80,000 (single) $130,000 to $160,000 (joint)2015 Tax Year Unchanged
Student Loan Forgiveness, Cancellation and Repayment Assistance	Excluded from income if forgiveness is conditioned upon working for a period of time in a particular profession for any of a broad class of employers	Amounts of canceled or forgiven student loan debt for student loans made by government agencies or educational institutions	None

TAX BENEFIT	BENEFIT AMOUNT	ELIGIBLE EXPENSES	INCOME PHASEOUTS
Scholarships, Fellowships, and Grants	Exclusion from income of amounts spent on qualified expenses if the student is a degree candidate and the scholarship is not payment for services. The full amount is exempt from FICA whether or not the student is a degree candidate. Unlimited number of years	Tuition, fees, required course-related materials (books, supplies, equipment)	None

TAX BENEFIT	BENEFIT AMOUNT	ELIGIBLE EXPENSES	INCOME PHASEOUTS
529 College Savings Plans	Earnings are tax-deferred. Qualified distributions are excluded from income. The earnings portion of a nonqualified distribution is taxed at the beneficiary’s rate and subjected to a 10% tax penalty. Unlimited number of years	Tuition, fees, books, supplies and equipment, expenses for special needs services. Room and board if enrolled at least half-time.	None
Prepaid Tuition Plans	Earnings are tax-deferred. Qualified distributions are excluded from income. The earnings portion of a nonqualified distribution is taxed at the beneficiary’s rate and subjected to a 10% tax penalty. Unlimited number of years	Tuition, fees, books, supplies and equipment, expenses for special needs services. Room and board if enrolled at least half-time.	None
Coverdell Education Savings Accounts	Earnings are tax-deferred. Qualified distributions are excluded from income. The earnings portion of a nonqualified distribution is taxed at the beneficiary’s rate and subjected to a 10% tax penalty. $2,000 annual contribution limit from all sources through age 18 Must be used by age 30 unless special needs	College tuition, fees, books, supplies, and equipment. Room and board if enrolled at least half-time. Elementary and secondary school expenses (tutoring, room and board, uniforms, transportation).	2014 Tax Year Phaseout on contributions: $95,000 to $110,000 (single) $190,000 to $220,000 (joint)2015 Tax Year Unchanged
Education Savings Bond Program	Exclusion from income of interest on Series EE bonds issued on or after January 1, 1990, and all Series I bonds. Unlimited number of years	Tuition and fees, or rollover into a 529 plan, prepaid tuition plan or Coverdell ESA	2014 Tax Year $76,000 to $91,000 (single) $113,950 to $143,950 (joint)2015 Tax Year $77,200 to $92,200 (single) $115,750 to $145,750 (joint)
Kiddie Tax	Unearned income between one and two times the standard deduction for a dependent may be taxed at the child’s rate, depending on the age of the child.	All expenses allowed.	None

TAX BENEFIT	BENEFIT AMOUNT	ELIGIBLE EXPENSES	INCOME PHASEOUTS
Early IRA Distributions for Higher Education	No 10% additional tax penalty on early distributions from an IRA for qualified education expenses, but earnings are otherwise still taxable as ordinary income. Unlimited number of years	Tuition, fees, books, supplies, equipment, and expenses for special needs services. Room and board if enrolled at least half-time.	None
Roth IRA	A return of contributions from a Roth IRA is excluded from income, but may nevertheless affect eligibility for need-based financial aid.	All higher education expenses	2014 Tax Year Phaseout on contributions: $114,000 to $129,000 (single), $181,000 to $191,000 (married filing jointly) and $0 to $10,000 (married filing separately)2015 Tax Year Phaseout on contributions: $116,000 to $131,000 (single), $183,000 to $193,000 (married filing jointly) and $0 to $10,000 (married filing separately)
Loans from Retirement Plans	Qualified retirement plan participants may borrow up to half of the vested account balance with a 5-year repayment term. This includes 401(k), 403(b), and government retirement plans, but not IRAs.	All expenses allowed.	None
Hardship Distributions from 401(k) and 403(b) Retirement Plans	Plan participants may take a hardship distribution from a 401(k) or 403(b) retirement plan to pay for college tuition, fees, room, and board. Distributions are limited to elective contributions. Hardship distributions may be subject to the 10% early distribution tax penalty.	Tuition, fees, room, and board.	None

Additional Information

IRS Publication 970, Tax Benefits for Education (PDF), provides additional detail on the various education tax benefits.

The IRS also publishes a special information center on Tax Benefits for Education and interactive tax assistants for evaluating eligibility for the education tax credits/deductions and student loan interest deduction. See also IRS Tax Tip 2010-30. Questions about education tax benefits are among the most frequently asked questions received by the IRS.

Many students file federal income tax returns for the first time when enrolled in college. IRS Publication 17, Your Income Tax, provides a good introduction, covering such topics as filing status, personal exemptions, withholding, estimated tax, standard deductions, itemized deductions, income tax, and tax credits.

Income phaseouts are updated annually by the IRS. The 2013 income phaseouts were published in Revenue Procedure 2012-41 and Revenue Procedure 2013-15. The 2014 income phaseouts were published in Revenue Procedure 2013-35 on November 18, 2013. The 2015 income phaseouts were published in Revenue Procedure 2014-61 on October 30, 2014.

The US Government Accountability Office (GAO) published a report, Multiple Higher Education Tax Incentives  Create Opportunities for Taxpayers to Make Costly Mistakes  (GAO-08-717T, May 1, 2008), which finds that the complexity of the many education tax benefits leads to suboptimal behavior by taxpayers. Some eligible taxpayers do not claim the education tax benefits. Others could have obtained a greater reduction in their tax liability by claiming a different mix of tax credits and deductions.

DISCLAIMER: The information contained on this website is provided for general informational and educational purposes and is not, nor intended to be, legal, financial, or tax advice. The publisher is not authorized to practice in front of the IRS and is not subject to IRS Circular 230. This information is general in nature and may not apply to the specific circumstances of individual readers. No claims are made about the accuracy, timeliness, or usefulness of the content contained on this website or any site linked to this site. Users of this site should seek specific guidance directly from a qualified legal, financial, or tax professional. Nothing contained on or provided through this site is intended to be or is to be used as a substitute for professional advice.

Sources:

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Parents, Click Here for Information on Educational Tax Benefits