Alternative Ways to Cut College Costs #2

Cash in on Tax Credits:
Scholarships, grants and loans aren't the only ways the federal government helps out. Education tax credits can save you thousands. Over a four year period, you can pick up $7,000.

Please refer to my previous posts to read about the HOPE, American Opportunity, Lifelong Learning and Interest paid on educational loans.

The Hope Credit

The Hope Credit--money for tuition and related expenses--can now be claimed for four years of college instead of just the first two, including the cost of course materials. The newly named American Opportunity tax credit lets you claim up to $2,500 per student, but starts phasing out with an income of $80,000 for singles and $160,000 for marrieds.

Also, don't forget to withhold the interest you're paying on student loans, although that deduction starts to disappear at $60,000 for singles and $120,000 for marrieds. Generally, if you paid more than $600 in interest to a financial institution, you'll get a 1098-E form as documentation. If you didn't, call the company servicing your loan and ask how much interest you paid in 2009.

Exclusions from Income

You may exclude certain educational assistance benefits from your income. That means you won't have to pay any tax on them. However, it also means that you can't use any of the tax-free education expenses as the basis for any other deduction or credit, including the Hope and the Lifetime Learning Credit.