Special Bulletin: Now Ask Your Senators to Preserve Your College Tax Benefits!

The U.S. House of Representatives recently passed its tax bill. This bill would repeal many of the higher education tax benefits on which millions of college students and parents rely. But it isn’t law yet.

The U.S. Senate will soon act on a similar bill. But as currently written, the Senate’s bill IMG_0078would keep the House-targeted college tax benefits in place and unchanged. These benefits include:

  • College Savings Bonds: The House would start taxing students on money they use from such bonds to pay college expenses.
  • Coverdell Education Saving Accounts: The House would prohibit new deposits into these accounts.
  • Death and Disability Debt Discharge: The House would tax student loan debts forgiven for borrowers who die or suffer total and permanent disabilities.
  • Employer-Provided Educational Assistance: The House would subject what your employer spends on your tuition, fees, books, and supplies to taxation The Senate would leave current law as is — so only employer spending above $5,250 would be taxed.
  • Graduate Tuition Reduction Exclusion: The House would make all tuition reductions awarded to graduate research and teaching assistants taxable income.
  • Interest Deduction on Student Loans: The House would end this $2,500 per year deduction.
  • Lifetime Learning and American Opportunity Tax Credits: The House would repeal the Lifetime Learning credit that applies to what you pay on a course helping you get a degree or a job skill. Instead, it would expand the American Opportunity credit from 4 to 5 years. But the American Opportunity credit applies only to degree-related courses. The Senate would leave both credits unchanged.
  • Tuition and Fee Deduction: The House would kill this $4,000 per year deduction for what you pay in tuition and fees for yourself, your spouse, and your dependents.

All these changes would take affect in 2018 unless the Senate causes them to be dropped.

The Senate will amend, debate, and vote on its bill soon after Thanksgiving, so there’s little time to contact your Senators (their contact information is here). Urge IMG_0081them to use the Senate bill to preserve the tax benefits described above.

The House and Senate must negotiate to finalize all differences in the bills they pass, and such negotiations often lead to one or the other bill’s differences being dropped. So the last, best hope for preserving these tax benefits is a Senate tax bill that opposes the House’s plan to kill them.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com if you have questions.

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Before College: Strategies for Your College Finance Plan

It’s best to begin your College Finance Plan’s (CFP’s) “Before College” phase when your child is born, if not before. But don’t give up if you didn’t. Instead, get going as soon as you can.

Consider initiating these strategies as your student gets closer and closer to college:

Birth through Junior High:

  • Invest and Save. Let time multiply your money, even if you can only put away a little. For example, a $50 month deposit into a 1% savings account beginning at birth will yield $14,820 through college commencement.
  • Prepare Your Child to Pursue Scholarships. Some scholarships are awarded IMG_9375based on grades and test scores, some stress essay and interview responses, and others go to students with strong resumes. So help your student do well academically, develop verbal and written communication skills, and persist in extracurricular and leadership activities she enjoys.
  • Identify a General Career Direction. He needn’t decide on cardiovascular surgery by age 15, but helping him develop in broad subject areas about which he’s passionate can save your student from being among the 80% who change majors — some two or three times — generating extra costs for extra courses.

High School through Junior Year

High School Senior Year:

  • Apply for Aid. Filing the FAFSA is a necessity. If your student’s seeking institutional or state aid, too, other application forms may be required.
  • Analyze Affordability When Selecting a College. Public data can help project what you’ll pay for a degree from each school to which your student is accepted.
  • Select a Good Fit. Fit helps reduce the chances of your student transferring, which amplifies tuition costs for repeating courses not accepted by his new school.

Why implement a College Finance Plan? Go to “Before, During, and After College: You Need a Plan!” for answers. A review of “During College” strategies will be posted on this website October 2, and “After College” strategies will be outlined here October 9. More in-depth discussions of individual strategies can be found here through the end of academic year 2017-18.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for free help if you have questions about your CFP.

Before and During College: Summer Can Be Used To Reduce College Costs

Spring semester ends soon. After finals, many students will use the summer to cut their college costs. The payoff for doing so can be huge!

Lot’s of employers need student employees to help manage increased summer activity levels. Others look to student workers to fill in for regular employees on summer vacation.

Over the last 4 years — from the summer after high school graduation through the summer before his senior year — Jack banked about $2,000 a year from his summer IMG_6029jobs. This allowed him to forgo the $2,000 per year in Federal Direct Unsubsidized Loan he would otherwise have needed to borrow for the costs of attending his university. It cut the principal and interest he’ll pay each month on his student loans by a third. It’ll also reduce the total amount he repays on those loans under the “standard” 10-year repayment plan by a whopping $11,200. That’s a darned healthy bite out of Jack’s borrowing costs.

IMG_6030Another cost saver is attending summer school at a community college close to home so the student doesn’t incur expenses for room and board. This is particularly effective during the summers after student’s freshman and sophomore years, when they’re likely to pick up courses that’ll count toward degree requirements at their universities.

Jill took this approach. Over two summers, she completed a total of 15 credit hours at her local community college. Tuition and required fees there were $117 per credit hour, versus $321 per credit hour at the university Jill attended fall through spring.

In doing this, Jill reduced the number of semesters it took to fulfill her university degree requirements from eight to seven. This cut her costs at that institution by $4,825 in tuition and fees and by $5,220 in room and board. So for $1,760, Jill cut her costs by $10,045 — a net savings of $8,285.

And the good news is that this isn’t an either/or proposition. Summer work? Summer community college classes? Many students do both!

Jack and Jill still get lots of summer “down time.” They still get to see friends they missed while away at school. And they still get to eat that good home cooking and to be with family. But their summers are also highly productive, because they significantly reduce the cost of their degrees — and what’s not to like about that?

Looking for strategies to keep college more affordable? Feel free to contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Before College: Problems With Beginning at Community Colleges

The financial reasons for beginning at a community college are compelling. But this isn’t necessarily what’s best for every student. Problems along the way undermine some students’ ability to complete an affordable higher education.

If your student seeks an occupation requiring a bachelor’s degree, he’ll eventually need to transfer to a 4-year college or university, so carefully consider whether he has the academic dedication, drive, and perseverance to get there.IMG_5562

Only 16% of students who begin at community colleges transfer and get bachelor’s degrees. Of course, not all these students want such degrees but, at an age when peer pressure is a big influence on your student, these will be his classmates and friends. They could distract him from his ultimate educational goal.

Course transferability is another problem. Your student will actually lose money whenever she must retake a community college course at a more expensive 4-year school.

She’ll probably be able to transfer some, but not all, community college courses to substitute for “core” courses at your state’s 4-year colleges and universities. Chances IMG_5628are that some of her less community college coursework won’t be accepted by those schools for classes she must complete to earn a specific degree. So before she registers for community college classes, urge her to check this out with that college’s academic advisor or the admissions offices at 4-year institutions to which she may transfer.

If your student has been accepted to another college, consider his scholarship offers that are limited to attending that institution. Most scholarship providers won’t hold their awards until he transfers from a community college. If those offers are large enough, he could actually lose money by not beginning at the school to which they’re tied.

Finally, to really save at a community college, your student will have to exercise spending and borrowing discipline while there. Attending a community college but borrowing to live an expensive lifestyle is a losing proposition. Your student may actually end up taking on more debt than classmates who began and ended at her 4-year college or university.

An affordable college experience isn’t worthwhile unless your student graduates with the degree she wants. Beginning at a community college can work If her eventual goal is a bachelor’s degree, but only if she avoids or overcomes the problems described above.

NOTE:
WE’LL BE TAKING SPRING BREAK NEXT WEEK, SO OUR NEXT POST WILL BE ON MARCH 22.

College Affordability Solutions can help you conduct an affordability analysis on various paths your student may take to earn a bachelor’s degree. Contact us at (512) 366-5354 or collegeafford@gmail.com if you need such assistance.

College Savings Bonds: An Affordable, Safe, Simple College Investment

Do you have a modest income and a limited amount to invest? Are you looking for a treasury-bondssafe, simple way to invest it? Are you interested in tax breaks that’ll free more of your other money for college savings bonds? If so, think about college savings bonds. Here are the fundamentals . . .

The U.S. Treasury Department sells education savings bonds. They’re extremely low-risk because they’re backed by the full faith and credit of the U.S. government.

There are two types of education savings bonds. You can buy Series “EE” bonds at half their maturity value and they slowly grow into that amount based on a fixed interest rate 3-ussavingsbonds_590x394that never changes. You can purchase Series “I” bond in denominations of $50 to $10,000 they grow into those amounts by paying interest based on inflation every 6 months.

You, or you and your spouse, may buy education savings bonds for your child (also for your spouse or yourself) directly from the Treasury at http://treasurydirect.gov/. You can redeem them as soon as a year after buying them, but if you do this less than 5 years after buying them you’ll lose the last 3 months of the interest they earn.

That interest isn’t subject to state and local income taxes. It’s also excluded from federal income taxes if:

Your tax exclusion starts to be limited if your MAGI exceed these amounts, and, if your MAGI reaches $91,000 and $143,950, respectively, they’re eliminated.

Your tax exclusions will cover whatever savings bond principal and interest you use to pay tuition and required fees at an accredited U.S. public, nonprofit, or for-profit college, university, or vocational school. If your student receives money from scholarships, other college investments (e.g. 529 plans), and carious educational benefits such as VA benefits, employer-provided educational assistance, etc. your tax exclusions could be limited.

Want to know more? Check out the Treasury Department’s publication called Using Savings Bonds for Education and its Education Planning webpage. And remember, every penny you invest and save makes your child less reliant on student loans to pay for college!

 College Affordability Solutions can help you evaluate various strategies for paying for college. Call (512) 366-5354 or email collegeafford@gmail.com.

Saving for College? Consider a 529 Plan.

One of the best ways to save for college education is a 529 plan. This is an investment designed to help save money for a child’s future college expense. Here are the basics.

A 529 plan — also know as a “Qualified Tuition Plan” — is owned by whoever opens the plan: a parent, other relative, or family friend. The child for whom the plan is img_4691designated is its “beneficiary.”

You may contribute to a plan even if you aren’t its owner, but the owner controls it. Contributions of up to $14,000/year ($28,000/year for married couples) aren’t subject to federal gift taxes.

529 plans offer other tax breaks — no federal income taxes on what they earn, and many states offer residents state tax benefits on their 529 plans.

One type of 529 plan is a “prepaid college tuition program.” This purchases all or part of the beneficiary’s future tuition at a rate set today so, as tuition rises, it’s already been prepaid at a lower rate.

The other type is a “college savings plan.” Plan managers invest what you contribute. You usually have different investment options, and earnings vary according to the return on those investments. Some college savings plans are riskier than others, so you could end up losing some or all of what you put in if they perform poorly.

When the beneficiary goes to a college covered by a 529 plan, what’s withdrawn from the plan isn’t subject to federal taxes (or state taxes in many states) as long as it pays “qualified education expenses” — tuition, fees, books, class supplies and equipment, certain room and board amounts, and some other college costs.

If the beneficiary doesn’t go to college or use everything in a 529 plan, what’s left may roll over to another beneficiary. This must be a relative of the original beneficiary — a sibling, cousin, niece or nephew, parent, etc.

All states and some colleges offer 529 plans. The earlier you contribute, the more the plan is likely to earn. But be sure to check out any plan you consider for “portability” — the number and locations of the institutions at which the Plan can be used.

To research each state’s 529 plan(s) and how to open them, check out the College Savings Plan Network’s website. For 529 plan information on federal taxes, qualified education benefits, and rollovers see pages 59-62 of IRS Publication 970.

College Affordability Solutions can help your family devise strategies to prepare financially for college. Call (512) 366-5354 or email collegeafford@gmail.com to make contact with us.