College Finance 101: A Money-Saving Crash Course for Parents


It’s great that you’re still basking in the warm, proud glow of your child’s high school graduation. Brace yourself, though. Come autumn, the cold realities of paying for college are sure to come rushing in. As you’re no doubt aware, higher learning comes at a high price. The latest report from the College Board puts average total charges at $14,333 a year for public colleges and $34,132 for private schools. But there’s no need to worry.

There are ways to cut the costs of college, and BlackEnterprise.com has compiled a guide for doing just that. Over the next few days, we’ll offer money-saving tax strategies, loan tips, and other creative techniques to see you through your next graduation celebration.

Lesson 1: Tax Tips

Take tax breaks. For 2009 and 2010, the Hope Scholarship credit has been replaced by the more generous American Opportunity tax credit. Recently signed into law, the new credit lowers income taxes by $2,500 for those who pay at least $4,000 a year during the first four years of a student’s post—high school education. The tax credit is issued per student. If you have three kids who qualify, and you spend more than $4,000 for each of them, you may be able to claim three $2,500 American Opportunity tax credits, for a total tax savings of $7,500.

Moreover, the American Opportunity tax credit is refundable, up to 40% of the amount for which you qualify. Say you spend $10,000 on your child’s college education in 2009. However, when you file your 2009 tax return, you owe only $1,200. Your American Opportunity tax credit would completely offset your tax liability, and because you don’t owe as much as your tax credit is worth, you will receive a $1,000 refund check (40% of $2,500) from the Internal Revenue Service.

The full American Opportunity tax credit is available only to taxpayers with a modified adjusted gross income of less than $80,000, or $160,000 on a joint tax return. Partial tax credits are available to those with incomes up to $90,000, or $180,000 for a joint return. Other, smaller tax breaks may help cut costs if your income exceeds those limits.

Tomorrow, check out Lesson 2: Loans

Robin White Goode is the co-author of this story.


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