Planning to Meet College Costs
No one likes to think about paying big college tuition bills. But the worst thing to do is not to plan ahead to meet your children’s education expenses. Here’s some information to help you meet the college financing challenge.
Investment plan grows
Lots of families are turning to the Vermont Higher Education Investment Plan (VHEIP) as a way to begin to save for college expenses. About 8,500 accounts holding a total of more than $90 million in assets have been opened since VHEIP began in 1999. Plans such as VHEIP are called 529 plans because of the section of the tax code that describes them. Qualified withdrawals are free of both state and federal taxes. The sooner you open an account, the more time your money has to grow. Call 800-637-5860 for more information or visit www.vheip.org.
Tax breaks for college
- Education IRAs, which are now called “Coverdell Education Savings Accounts,” have a yearly allowable contribution limit of $2,000.
- The HOPE CREDIT is a tax credit of up to $1,800 for qualified education expenses per each eligible student per year, and it is available until the first two years of postsecondary education are completed. A 100% tax credit is available for the first $1,200 paid for qualified expenses, and a 50% tax credit is available for the second $1,200 paid for qualified expenses. Eligibility decreases for modified adjusted gross income (AGI) between $48,000–$58,000 (filing single) and $96,000–$116,000 (married, filing jointly). Families cannot claim a Hope credit if their modified AGI is above these limits. See IRS Publication 970 for details and guidelines.
- The LIFETIME LEARNING CREDIT is a credit of up to $2,000 per tax return (covering all students in the household) per year for qualified higher education expenses. It is available for all years of postsecondary education and for courses either to acquire or improve job skills. There is no limit on the number of tax years the lifetime learning credit can be claimed. The credit can be claimed for 20% of the first $10,000 of qualified education expenses paid, up to $2,000. Eligibility decreases for modified adjusted gross income (AGI) between $48,000–$58,000 (filing single) and $96,000–$116,000 (married, filing jointly). Families cannot claim this credit if their modified AGI is above these limits. See IRS Publication 970 for details and guidelines.
- Middle-income parents who may not qualify for Hope and lifetime learning credits are now able to deduct up to $4,000 of college tuition expenses annually. See IRS Publication 970 for guidelines.
Scholarship help
Scholarships, like grants, do not need to be repaid, but unlike federal and state grants (which are given to students based solely on financial need), scholarships are competitive. Students who apply for scholarships must not only meet specific eligibility requirements, but must compete against others who may meet these requirements.
No two scholarships are alike. Scholarships may be based on any of the following criteria, or possibly others:
- financial need
- residency (the particular state, county, or town in which a student lives)
- affiliation with a religious community or other organization
- extracurricular activities, including community service or clubs
- anticipated field of study
To find scholarships for which you may be eligible, you can begin looking at your local high school and town offices; also consult local businesses and organizations; next, expand your search to include statewide scholarships, and finally national scholarships. The advantage to this approach is that scholarships offered to students only in your region will be less competitive than those offered across the United States.
Use VSAC to search for reliable, legitimate scholarships:
- VSAC’s scholarships booklet has application details for more than 160 individual scholarships available to Vermont residents, along with a list of reputable Web sites that provide information on national scholarships.
- For a copy of the booklet,
- E-mail publications@vsac.org
- Visit www.vsac.org/scholarships
- Or call VSAC at 800-642-3177 (655-9602 in the Burlington area)
- E-mail publications@vsac.org
- Visit the VSAC Resource Center for computers, books, and advisors to help you locate information about scholarships or other aspects of the college search and application process.
You can find scholarship information from these additional sources:
- your guidance office
- your local library
- your college or university
- the VSAC Web site at www.vsac.org (links to national scholarship searches)
