College Tax Benefits from the 2009 Stimulus Package

One of the most expensive outlays of money that a family encounters involves higher education costs.  Families are challenged with the job of deciding how to finance a child’s college education by choosing one of these methods:  Paying cash out of personal reserves, an Education IRA, financing with Parents Plus loan, or having the student take out a Federal Student loan.  Some parents have also resorted to second mortgages on their homes for this enormous task.

In addition to this, every year one hears of more institutions that are increasing their tuition and associated fees.  These small incremental increases add up over the years.  And during the four years of a college education, this can mean thousands of dollars added to the bill for the student’s education.  While support in terms of tax benefits for students and parents has always been a priority for the government, it has become increasingly more so because of these large jumps in costs.

The 2009 Stimulus package passed by Congress and signed into law by President Obama seeks to help mitigate these costs.  In fact, the tax credits for higher education are even more beneficial than the Hope college credit as it exists now.  The Hope credit allows tax deductions of $1,800 per student, per calendar year.

Under the Stimulus package a tax credit of up to $2,500 a year is allowed for parents of college students who are still dependents.  Also increased is the maximum income amount allowed for taxpayers before the deduction is no longer allowed.  This amount is an adjusted gross income of $80,000 for single, head of householders.  Married persons can have double the adjusted gross income of $160,000 and still claim the tax benefit.  The Hope credit has adjusted gross income limitations of between $50,000 and $60,000 for single filers, and $100,000 to $120,000 for joint filers.

The cost of books and additional course material is also included in the expenses that are allowed in this credit.  The rationale for this was to benefit students who attend community colleges or other such schools which have modest tuition rates.  Students who attend these types of schools still bear the costs of these related expenses equal to their counterparts in larger universities that have higher tuition rates.

It is the duty of parents and their children to determine the route to take in paying the costs of a college education.  A frank discussion of the amounts and how to pay for them might include ways for the student to contribute to the picture by having them work part-time to raise money for incidental expenses.  Also, room and board are often scrutinized as well.  Finding a safe, convenient place for a student to live that is affordable is also a major challenge.

These tax breaks are welcomed and embraced by parents and students alike, but are just a part of the overall plan to put a child through a secondary education program with the lowest cost structure as possible.