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Mid-Life Return to College? Maybe Uncle Sam Can Help!  |
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 As more and more good paying jobs exit the country (never to return according to John McCain), many Americans are finding themselves in a position in which they need to go back to school to train for a new career. Perhaps the biggest shock awaiting these folks is the ever increasing cost of tuition. The average tuition cost for public colleges is almost $14,000 a year.
But just because you’re not 18 anymore doesn’t mean you can’t compete in the classroom, or for the same tax credits, grants and scholarships that your younger classmates do.
Before you step into the classroom, consider the following:
If you’re pursuing undergraduate or vocational study: Consider the federal Hope tax credit, which allows a tax credit for the first two years of post-secondary education. For tax year 2008, the maximum Hope Credit has been increased from $1,650 to $1,800. Who’s eligible? An eligible taxpayer is enrolled in one or more courses at an eligible college or university, must file a federal tax return and owe taxes to claim the Hope credit – that means you can be eligible for the tax credit if you are a student or if your spouse or child is a student. The Hope tax is a nonrefundable credit.
If you’re pursuing graduate school or upgrading your skills: Check out the Lifetime Learning Credit, which applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills. The amount is per family, not per student, and translates to a maximum credit of $2,000 – not much, but it’s better than nothing. The credit is equal to the first 20 percent of $10,000 spent out-of-pocket on qualified tuition and related expenses. The credit may be claimed by the parent or the student, but not by both. Nor can the Lifetime Learning Credit be combined with the Hope Credit. For single individuals, the credit starts to phase out when their modified adjusted gross income reaches $48,000 for 2008 (up $1,000 from 2007) and is completely phased out when the adjusted gross income is $58,000 for 2008 (up $1,000 from 2007). Married couples who file jointly start to lose the credit when their modified adjusted gross income reaches $96,000 for 2008 (up $2,000 from 2007) and completely lose the credit when their adjusted gross income reaches $116,000 in 2008 (up $2,000 from 2007). Like the Hope Credit, the Lifetime Learning Credit is a nonrefundable credit.
Tuition and fees deduction: The IRS allows deductions of up to $4,000 on tuition and fees (even when you borrow to pay them) as long as you do not file your tax return as “married filing separately” or if your modified adjusted gross income is more than $80,000 if single or $160,000 if you’re filing a joint return. But there’s bad news, too. If you took a Hope or Lifetime Learning Credit for yourself, you won’t qualify for this deduction.
Interest on student loans: In 2008, you will be able to deduct up to $2,500 of interest on student loans. Taxpayers with a modified adjusted gross income over $70,000 for individual filers or $140,000 for joint filers don't qualify for the deduction. There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan.
Know which scholarships and grants are tax-free: You generally need to be a degree candidate – not someone who’s taking a course or two to brush up on your skills.
Beyond federal tax breaks, make sure you investigate:
• Whether the particular coursework you’re planning will give you the best possible return in terms of pay or new career choices.
• Any tax breaks on the state level.
• Whether investing funds in a 529 college savings plan makes sense for you.
• Any scholarship or education subsidies offered by your employer.
• Any scholarships or grants offered by industry or trade groups.
Information for this article provided by the Financial Planning Association (FPA).
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