Tax Credits and Deductions for College Students Makes Your Degree more Affordable

As we write this article, it is the annual tax season in the U.S., when millions of college students and their families file tax returns and submit the Free Application for Federal Student Aid, known as FAFSA in order to qualify for financial aid at their colleges and universities. Filing these taxes is a FAFSA requirement.

We want to share some good news with readers of the Online Education Blog. The federal government provides a number of tax incentives that can help defray the cost of higher education for tax filers.

These tax incentives come in a couple of forms:

1. Tax credits, which directly reduce the amount of tax you owe; and
2. Tax deductions, which reduce the amount of income that you pay taxes on.

Linfield College Adult Degree Program offers financial aid for students enrolled in our bachelor’s online degree and online certificate programs. Access the Federal Higher Education Tax Benefits Guide published by the National Association of Student Financial Aid Administrators on the Adult Degree Program website on our Financial Aid page.

You may find some of the following information that is referred to in the Federal Higher Education Tax Benefits Guide to be helpful as you plan for completing your college degree or certificate.

The American Opportunity Tax Credit, created in 2009, was recently given a time extension by Congress. Tuition, related fees, such as online fees, books, and other required course materials generally qualify for inclusion in the tax credit.

The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2500 credit may be available to a taxpayer who pays $4000 or more in qualified expenses.

Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1000.
Crisanne Werner, Director of Financial Aid at Linfield College says, “the American Opportunity Tax Credit is set to expire after the 2011 tax year so students should not delay in taking advantage of this opportunity.”

The Lifetime Learning Tax Credit is another valuable incentive for enrolling in college courses. Expenses that count towards this credit are tuition, fees, and amounts required to be paid to the institution for books, supplies and equipment. You don’t have to be pursuing a degree or certificate to qualify for the Lifetime Learning Credit. You can claim it for all years of post secondary education and for courses to acquire or improve job skills.

If you claim the American Opportunity credit for one or more students in your family, you can’t use their expenses to figure your Lifetime Learning Credit. You can still take a Lifetime Credit for family members for whom you are not claiming the other credits.

If you are repaying educational loans, you will want to take advantage of Student Loan Interest Deduction where you may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

If you are currently repaying on a student loan, and you return to college to complete your degree, you will likely be eligible to place your previous loan into deferment while you are back in school. Once you have become admitted to a degree program and are re-enrolled in classes, contact the office of financial aid for guidance on how to do this.
Many different tax credits and deductions can help you as an adult student to defray the costs of earning your bachelor’s degree, and thereby make your dream of achieving your college degree more affordable.

An additional resource is the Tax Benefits for Education section on IRS.gov, which includes tips for taking advantage of these education credits and deductions.

Find important information about financial aid and assistance with your questions on our financial aid page.

Crisanne Werner, Director of Financial Aid at Linfield College contributed to this article.

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