Paying for Higher Education - 12/05/08

Jeff: Ohio colleges recently received an ‘F’ in affordability. A recent report by the National Center for Public Policy and Higher Education stated that higher education in Ohio along with 48 other states was too expensive. Here to discuss ways to reduce the impact of higher tuition is attorney Michael Solomon.

Jeff: A public college education can cost in tuition and books and room and board over $20,000 per year or more. Private schools can cost in the $30,000 range or more. Are there any ways to reduce the cost?

Mike: Jeff, college clearly costs a lot. Although Governor Strickland froze tuition increases two years ago, with the big deficits the state is facing it is not clear how much longer that will last.  However, the tax code provides some relief to reduce the costs.

Deductions and Credits: You may qualify for tax credits of up to $2000 for payment of tuition.  If your income is too high to qualify for the credits, you can possibly qualify for a deduction of up to $4000 paid for a child’s tuition. There are all sorts of complicated rules to qualify. For example the tax credit in only availed for people with an adjusted gross income below $110,000 if married or $55,000 if single.

Section 529 Plans: You can save for college tuition in these plans. You put your money in the plans, and they grow tax free and can be used for college tuition and other college expenses.

Education IRAs: You can deduct up to $2000 per year into these education IRAs. The money grows tax free, and then you pull the money out tax free to pay tuition and certain college expenses.

US Savings Bonds:  You may be able to exclude from tax the interest earned on US Savings Bonds used for college tuition or certain other college expenses. 

If you want more information go to the IRS web site and get IRS Publication 970 which goes through all of these tax benefits and others.

Jeff: Well it’s nice to know you can save a few thousand dollars off of your tax bill, but when you still have to come up with $10,000 to $20,000 dollars, that still makes it tough in today’s economic climate. Is there any thing else you can do?

Mike: There are several types of loans that the federal government backs.

• The Plus Loan:  Parents can borrow the total cost of the college education for these loans. However, with the tougher credit market that exists, it is harder to qualify. For example Ohio State’s website indicated that over 18% of loans were denied.
•  Federal Direct Student Loans and Perkins Loans:  There are limits on these loans.  Some are subsidized and charge no interest while the student is in school and also don’t require payments until the student graduates.

Unfortunately, all of this is very complicated. Usually, the university’s websites have good information on this, or contact the schools financial aid department.

Jeff: Thanks.