Tax Breaks for Student Loans
Good news! The interest you pay on your student loan might let you pay less on your taxes. Thanks to the Taxpayer Relief Act of 1997, tax time will be a little better for you and other student borrowers.
How It Works
Depending on your specific loan situation, you may be eligible to deduct some of the interest you pay on student loans from your reported income. That means a lower income bracket – and less tax.
The amount you can deduct depends upon your income level. Right now, the maximum deduction is $4,000.
To claim this deduction, you must use either Form 1040 or Form 1040A. Follow the instructions included with the form to determine the amount you can deduct. Include that amount on line 24 of Form 1040 or line 17 of the Form 1040A.
Who Is Eligible
Both students and parents who have taken out loans on behalf of their kids may be eligible for this deduction.
You can deduct interest on your student loans if you:
- have taken out the loan to pay for your own expenses or the expenses of a spouse or dependent;
- have used the loan for qualified educational expenses;
- are enrolled at least half time in a degree program at an eligible institution; and
- are not claimed as a dependant by your parents on their tax returns.
You also must meet an income test. The income limits are dependent on your marital status and your adjusted gross income (AGI).
Your AGI is your total income minus deductions for a number of items, like moving expenses or medical savings accounts. The IRS includes an income-test worksheet in the instructions that come with the 1040 tax forms.
Once you’ve determined your AGI, you’ll know if you’re eligible for a tax break. If you are a single taxpayer and report an AGI of less than $80,000, you’re eligible. Married taxpayers are eligible if they report a modified AGI of less than $160,000.
Qualified Educational Expenses
To take this deduction, you must have used your loan only for certain kinds of expenses that contribute to your education. The expenses that qualify include tuition, fees, room and board, books, supplies and other related expenses. These expenses must come from your enrollment in a degree, certificate or similar program at an eligible institution. Eligible institutions include most colleges, universities graduate schools and vocational schools.
Eligible loans include the Federal Stafford and the Federal PLUS loans, other federal education loans, personal loans issued by banks and other financial institutions and home equity loans. You can’t use the loan money for purposes other than qualified educational expenses.
You may only deduct interest that was paid during the tax year, as long as the payments were due and made during the first 60 months of repayment.
Keep in mind that if you’re planning to take this deduction, you should save any receipts and bills for your educational costs. If you’re audited you’ll need them in order to document to expenditures.
More Information
For more details on the tax break on student loans, visit the IRS Web site at http://www.irs.gov/. Check out:
- “Publication 970, Tax Benefits for Higher Education” http://www.irs.gov/pub/irs-pdf/p970.pdf
- Student Loan Interest Deduction
http://www.irs.gov/ – Go to “Help”, click on “FAQs” (on the left), scroll down near the bottom of the page and click on “Student Loan Interest Deduction”
You can also call the IRS to ask questions or request forms and publications. The toll free number for tax questions is 1-800-829-1040. The toll-free number for requesting forms is 1-800-829-3676.
Look into the IRS tax breaks and see if you’re eligible. You just might look forward to filing your taxes this year!
Wall Street Meltdown: What does it mean to you?
With the bankruptcy of many companies, the bailout bill passing, the jobless rate growing, and the markets tumbling, Wall Street is in crisis. Low interest rates and serial lending are now haunting the markets. But as parents of lowly college students, what does it mean for you and them?
Banks like Washington Mutual and Wachovia have failed and have been bought out by larger competitors. For those of you with bank accounts at WaMu and Wachovia fear not.
The FDIC (the Federal Deposit Insurance Corporation) was created after the Great Depression just for this. The FDIC will guarantee all the money you have in a bank account up to $100,000. Since you’re a college student who likely doesn’t have more than 100k sitting around, your money is safe.
On the loan front, we’ve already seen lenders close shop or stop disbursing student loans. Getting a loan with no credit history is virtually impossible now, which is to your benefit. Not having to deal with high interest rates after college is a gift. Instead, as a parent who has good credit, being a co-signer betters a students chances for being approved for a loan and receiving a low interest rate.
For you parents with 529’s or other college saving plans, consult your financial advisor on the composition of those plans. Many parents choose to put money in mutual funds, funds with a diverse range of stocks, to finance college.
Depending on the stocks that make up these plans, mutual funds can take a hit in tough economic times. Of course, these funds are meant for long-term investment and panicking at every economic slowdown isn’t wise. Still, by consulting with a financial professional, parents can see if they need to reevaluate these plans to protect what’s there and avoid costly losses.
Scholarship Myths
Here, we are about to dispel five widespread myths about winning college scholarships. Myths that have, unfortunately, prevented many deserving students from winning money for college. By learning the truth behind these myths, you’ll gain a better understanding of the essential “rules” of the college scholarships game.
MYTH #1: “Only students with high academic achievement win merit scholarships.”
The Real Story: Scholarships are awarded to students with all sorts of talents and interests. In fact, many of the best scholarship programs are designed for students who devote time and energy to such diverse fields as music and the arts, foreign languages, community service, science, leadership, writing and oratory, to name just a few. Typically, these programs are entirely “grade blind”—meaning that grades are not used as a judging criteria.
Furthermore, many scholarships that do take into account grade point averages (GPAs) only use such quantitative measures as preliminary cutoff points. For instance, some scholarship contests specify that applicants have a minimum 2.0 GPA. Once you’ve cleared this minimum bar, grades don’t impact your chances of winning.
Finally, even when GPA is used as an evaluation factor, it’s only one aspect of your application. Scholarship programs aren’t myopic: They want to recognize students with all sorts of achievements and backgrounds. They realize that applicants have much more to offer than simply the grades that appear on their transcripts.
MYTH #2: “Scholarship applicants should seek to compile the longest list of extracurricular activities.”
The Real Story: As is the case in many other aspects of life, winning scholarships is about quality, not quantity. Some people think that to win these awards you must devote your entire high school career to participating in extracurricular activities. On the contrary, most scholarship winners distinguish themselves by the devotion they have demonstrated to a particular activity or activities, rather than by the sheer quantity of their involvement. Winning scholarships isn’t about having the longest list of extracurricular activities. It’s about communicating who you are and what you care about through the activities you participate in and enjoy.
MYTH #3: “Scholarship contests are conducted on a level playing field.”
The Real Story: Each scholarship contest has its own biases. This is not to say that scholarship judging is unfair. Rather, it’s just that each scholarship program is looking for students with particular qualities. The subjective process of valuing certain qualities over other ones tilts the playing field far from level. In this way, the ideal application you submit for one scholarship contest may, in fact, place you out of the money when submitted to another. Because of these biases, it’s essential to define each scholarship’s “ideal applicant” and to emphasize personal attributes consistent with this definition.
MYTH #4: “Applying for scholarships is just like applying to college.”
The Real Story: Actually, scholarship contests demand a modified approach from the college admissions process because scholarship contests are characterized by substantially more head-to-head competition. While college admissions officers compare students primarily to a standard, scholarship contests directly compare students to one another. Because of this more competitive environment, students who devise creative techniques to stand out from the crowd have a distinct advantage. In this way, a good scholarship application (which distinguishes you from everyone else) will likely be a good college application—but the reverse is not necessarily true.
MYTH #5: “The track record you’ve already accumulated determines whether you’ll win scholarships.”
The Real Story: What you do after you decide to apply for scholarships is just as important as the record you have already accumulated. This holds true regardless of how much time you have until a particular scholarship application is due. Content strategies, for instance, increase your chances of winning by adding depth and breadth to your existing record. Likewise, packaging strategies help make your application stand out from the crowd by creating a cohesive message that highlights talents, communicates passions, and emphasizes potential. So don’t fall into the trap of thinking that your die has already been cast. What you do now will make all the difference in the world.
In conclusion, if you “see” a scholarship that suits you apply and see how it goes. As the old saying goes, there’s no harm in trying.
Joe the Confused College Student
Meet College Joe. He attends a four-year university and is going to graduate in May. Unfortunately, College Joe had to take out a lot of loans to pay for his education. When he graduates, he’ll be roughly $61,000 in debt.
What’s worse is that College Joe has no “real world” job prospects. In fact, he’s been hearing from most of his peers that the job market is a tough place right now. He also hears that graduate students can defer ALL of their loans while they’re in school. So what does College Joe do? He starts studying for the GRE in hopes of going to graduate school after graduation. This sounds good to him.
College Joe seems like a smart enough guy. After all, he’s graduating in four years. And during his senior year, when the biggest concern is typically which party to attend, College Joe is thinking about his finances. But going to grad school to avoid paying off student loans isn’t necessarily the brightest idea. However; many graduating students are taking this option.
During the past ten years, the cost of college has risen 83% while the wages for college graduates have only increased by 38%. To top that, the projected growth of entry-level jobs for college grads in 2009 is 1.3%, compared to 14.3% for the Class of 2008. No wonder students are heading toward the safe haven of graduate school.
But is it the best choice? Many career guidance counselors at colleges say absolutely not. Students going straight to graduate school from college will be setting themselves up with more debt and less marketable work experience. In fact, master’s candidates at University of Wisconsin-Madison graduate with roughly $31,000 in debt while PhD candidates graduate with almost $33,000. Add that to your $61,000 from your undergraduate years and you’ve got yourself a lot of debt.
College students need to ask themselves if going to graduate school will help them achieve their desired salary and whether or not it will be enough to repay the debt.
They should also look at increasing their employment options through specific public-service opportunities. Programs like AmeriCorps, the Peace Corps, and Teach for America provide stipends for “employees” while the government defers, or in some cases forgives, student loans. Also, the government offers loan forgiveness for military service or for doctors, nurses, or teachers working in high-need areas.
Graduating students need to take a hard look at what might seem like a good idea in the short run but maybe all wrong for them in the long term. Walking out of college with 50 to 120K in debt puts the student in a financial hole that may last a lifetime or close too it. Please remind your student to think this over.
Education Gets Big Piece Of The Proposed $825 Billion Economic Stimulus Package
Students, researchers, and colleges could benefit greatly from the proposed $825 billion economic-stimulus plan unveiled by Democratic leaders in the U.S. House of Representatives.
House Appropriations Committee Chairman Rep. David Obey recently released details of the proposed American Recovery and Reinvestment Bill of 2009; a bill that includes $550 billion in investments and $275 billion in economic recovery tax cuts.
The House’s version of the economic stimulus package would provide as much as $20 billion for students, $8 billion for scientific research, $9 billion for academic facilities, and $39 billion for states for education purposes.
The bill would provide the following funding to education:
- Increase the maximum Pell Grant by $500, from $4,850 to $5,350 for 2009-2010
- Increase limits on unsubsidized Stafford loans by $2,000
- Replace the Hope tax credit with a tax credit worth up to $2,500 a year, of which $1,000 is refundable to help students from low-income families
- $490 million in additional funding for undergraduate and graduate work-study
- $50 million additional funding to help the Department of Education administer student aid programs
- $14 billion for K-12 technology upgrades and energy efficiency improvements:
- $6 billion for higher education technology upgrades and energy efficiency improvements
- $1 billion for computer and science labs and teacher technology training
- $39 billion to local school districts and public colleges and universities to help restore cuts to critical education programs
- $15 billion to states in bonus grants as a reward for meeting key performance measures
- $25 billion to states for other education needs
- $4 billion in grants to community colleges and for-profit institutions that provide adult education and job training
However, this House bill will most likely be changed soon, since the Senate is currently drafting its own version and there are several steps remaining in the political process prior to the bill landing on the president’s desk for signing.
Student Gets College Degree In Just 2 Years
Andrew Brisbin entered North Central Texas College at age 14 and transferred to the University of Texas a year later. He graduated from the UT School of Business in December at age 16, an age when most students have yet to receive their high school diplomas. He completed the requirements for a bachelor’s degree in finance in two years by attending summer school and taking a heavy course load.
Harvard Endowment Gets Hit By Economic Crisis – Loses $8 Billion in 2008
Harvard University’s endowment, the largest of any college or university, stood at $36.9 billion, or a loss of about $8 billion in its 2008 fiscal year. $8 billion is more than the entire endowments of all but six U.S. colleges, according to Chronicles of Higher Education. Harvard is also planning for an additional 30% decline in it’s 2009 fiscal year.
The I.R.S. Considers Scrutiny Of College Business Activities
According to a senior IRS official, the Internal Revenue Service may soon focus on the billions of dollars associated with academic research, federal financing and intellectual property at various colleges around the country. This is an expansion of an original investigation to learn more about whether academic institutions are improperly using their nonprofit status to avoid paying certain taxes. Some endowments have tried to avoid income tax by investing with offshore hedge funds and placing its intellectual property in overseas tax havens.
Be Aware Of The Upcoming College Tuition Hikes!
The year 2009 just began and already most of the nation’s colleges are considering dramatic tuition hikes this coming fall.
Tuition rates have been increasing at an alarming rate over the past 20 years. This is raising concerns that middle and lower-income families will either be priced out of the market, or end up in serious debt to get a college education.
During tough economic times, state colleges and universities have historically proven to be easy targets when budgets must be trimmed. As financial support from the state is withdrawn, schools have been forced to raise tuition to balance their budgets.
Furthermore, states have been pouring more and more resources into elder health care, particularly Medicaid, the state-federal program that provides medical services to the poor. Today, Medicaid represents about 20 percent of the average state budget and is a larger percentage than all elementary and secondary education. As a result, higher-education funding often finds itself crowded out by other priorities.
While this problem isn’t a new one – it’s growing more critical. The current economic crisis has accentuated the lack of state funding for education. Today, many states are in dire need of revenue just to meet their own payroll, let alone provide funding subsidies to the colleges.
All this means that students may have to pick up an even higher percentage of the tuition tab this fall. If this happens, many parents could be forced to access their retirement funds to send their kids to college, even though many have seen their 401(k) drop in half over the past year.
If you are sending your children to college in the next one to four years, you need to develop a financial game plan NOW. We can help! Contact our office and we’ll help you develop a strategy to pay for college, without robbing your retirement to do so.
If you have any questions about the information contained in this newsletter, or any questions about college funding in general, please contact our office.
Resume Rx for College Students
Question: How can I make my academic and extracurricular responsibilities look more professional?
Answer: Be specific in your accomplishments. Use numbers whenever possible.
If you were an employer looking at a college student’s resume, which of the following entries would impress you more?
- “Wrote news releases”
- “Wrote 25 news releases in a three-week period under daily deadlines”
Clearly the second statement carries more weight. Why? Because it uses numbers to quantify the writer’s accomplishment, giving it a context that helps the interviewer understand the degree of difficulty involved in the task.
With a little thought, you can find effective ways to quantify your successes on your resume. Here are a few more examples:
- “Wrote prospect letter that brought in more than $25,000 in donations”
- “Managed a student organization budget of more than $7,000″
- “Introduced 17 student-service-improvement proposals as residence hall representative for student government”
- “Recruited 25 members for a new student environmental organization”
Question: How specific should my “Objective” statement be?
Answer: It is best to use broad categories of desired jobs and internships so that you can be considered for a wide variety of positions related to the skills you have. This is particularly important if you’re not sure what career field you’re planning to enter.
However, if you have a specific internship or career that you really want, such as “art therapist with the mentally handicapped”, then you should state that.
Question: Should I include my GPA on my resume?
Answer: If you are a student or recent graduate, list your GPA if it is 3.0 or higher. Consider including a lower GPA if you are in a very challenging program. Add your major GPA if it’s higher than your overall GPA. If your school doesn’t use the standard 4.0 scale, avoid confusion by listing the scale (e.g. GPA: 4.1/4.5). As your career progresses, college GPA becomes less important and can be removed.
Question: What do I do if I don’t have much professional experience?
Answer: Students and new grads with little related work experience can use the education section as the centerpiece of their resumes, showcasing academic achievements, extracurricular activities, special projects and related courses.
For example:
ABC College, Macon, Missippi
B.A. in communications, concentration in advertising
Anticipated graduation: June 2008
- Senior Project: Currently completing mock advertising campaign for Coca-Cola (billboard/print/TV/radio ads, direct-mail campaign and press releases).
- Related Coursework: Advertising, Advertising Writing, Direct Mail and Telemarketing, Media Plans in Advertising, Marketing and Advertising, Public Relations, Broadcasting
Question: Should I include any information from high school (honors, activities, etc)?
Answer: No
How Obama Could Help Pay Your Tuition
President elect Barack Obama has vowed to make education a top priority. But what does that mean for you?
According to Education.com, America lags behind many nations in the world when it comes to making college affordable.
To make college more affordable for Americans, Obama plans center around two goals: his American Opportunity Tax Credit and freeing up more money for aid by using public instead of privately funded loan providers.
Obama said his tax credit will ensure that, “The first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university,” he says. “And by making the tax credit fully refundable, my credit will help low-income families that need it the most.”
Additionally, Obama says he wants to make math and science education a national priority, noting that 80 percent of the fastest growing occupations are dependent upon a knowledge base in science and math, yet studies show American students do not graduate with the skills needed for these fields, Education.com reported.
According to Obama, “A truly historic commitment to education — a real commitment will require new resources and new reforms.” He said, “It will require a willingness to break free from the same debates that Washington has been engaged in for decades — Democrat versus Republican; vouchers versus the status quo; more money versus more accountability. And most of all, it will take a President who is honest about the challenges we face — who doesn’t just tell everyone what they want to hear, but what they need to hear.”
Change…in Higher Education
Obviously, the economy is President elect Barack Obama’s main focus as he takes the reigns from Bush in January. However, let’s not forget that Obama has many other initiatives he hopes to tackle during his presidency. If you haven’t heard by now, Obama wants to make college more affordable for all Americans and his plans to do so will soon affect you. So…what are his proposals for change in the collegiate sector?
American Opportunity Tax Grant
Under Obama’s American Opportunity Tax Grant, all Americans will receive $4,000, fully refundable, for their college education. This amount actually covers 2/3 of a first year at a public university and one whole year in community college costs. But you don’t just get $4K for going to college; there is a 100 hours community service requirement.
Simplify the FAFSA
Insert huge sigh of relief. Obama proposes to replace the complicated FAFSA from with a check box on all tax forms that authorizes the use of tax information for financial aid purposes.
Early Assessment Program Funds
Some states have developed Early Assessment Programs for juniors in college. Basically, these programs assess the individual junior and determine whether he/she is prepared for college. If not, the program provides resources to get that student up to speed. Obama hopes to encourage EAP and will provide $25 million in matching funds for states that develop the programs.
Increase in Pell Grants
During his term as president, Obama hopes to maximize the Pell Grant to the amount of $5,400.
Community College Partnership Program
Three-fold plan:
- Conduct more analysis on types of skills and technical education that are in high demand from students and local industries
- Create new associate of arts degree programs
- Reward institutions that graduate more students and also increase number of transfers to four-year institutions
Student Loans
Obama hopes to eliminate the Federal Family Education Loan Program, which has a focus in private student loans and is more expensive.
What to Do if You’re Wait-Listed
You finally get that long-awaited letter from your top-choice school … and you haven’t been accepted or rejected, you’ve been wait-listed. Suddenly you’re in admissions limbo. Here’s what you should do while you wait to learn your admissions fate.
Don’t Let It Get You Down
It’s easy to view being placed on the wait list as a rejection. While it’s no easy task getting off the wait list, it’s not impossible either. Colleges use wait lists when they’ve accepted the maximum number of applicants, but still view some applicants as well qualified. The wait list is a safety net colleges use to fill their class if not enough accepted students enroll.
Don’t get down if you’ve been placed on the wait list. “Don’t beg or plea” – that’s not helpful for an admissions counselor. While you shouldn’t feel dejected, keep in mind that your chances of being accepted from the wait list are slim. Instead of wasting time feeling down, take action to get off the wait list.
Decide Whether You Want to Stay on the Wait List
You have the option to remain on or remove yourself from the wait list. If you want to stay on the list, return the form indicating your interest to the college as soon as possible. If you’ve been placed on several lists, there’s no reason why you can’t stay on more than one.
Find out What Your Chances Are
The number of students on wait lists varies. On average, 27 percent of all students who were wait-listed eventually gained admission, according a National Association for College Admission Counseling (NACAC) report.
Check if the college ranks its wait list and ask if you can know your rank. If your school doesn’t prioritize its list or won’t tell you your rank, look at how many students were accepted from the wait list in the past. You can request information on how many students were accepted from previous wait lists, according to the NACAC “Statement of Students’ Rights and Responsibilities in the College Admissions Process.”
Let the College Know you’re Interested
Don’t just wait out the wait list – make an active effort to get onto the roster of admitted students. “When a student receives a letter saying that they’ve been put on the waiting list, they should respond to the college immediately.”
Write the admissions office and emphasize your sincere desire to attend their school. Don’t have your parents or counselors contact the school on your behalf. “It’s really important that colleges hear directly from the student at all times and not from the parent.”
Find out who represents your region in the admissions staff and send them an email explaining your situation and expressing your growing interest in attending their institution. Be specific and name courses, professors, extracurricular activities, sports teams and other features of the college that you’re excited about and that match your goals.
Continue to Brag
Keep the admissions office updated on your latest grades, achievements and honors. Maintain email contact with your regional admissions representative, but don’t swamp them. “Sending an email on a weekly basis saying the same thing dilutes the significance of whatever that student is sharing, “If it’s not new, don’t email the admissions counselor.” Send in a new letter of recommendation that shows you in a different perspective. You may be reevaluated on this new information and it shows the college that you are serious.
Get On With Your Life
Make plans to attend another school. Send in your deposit to secure a place at your second-choice college. “This whole waiting list thing is about expectations and once students are able to let that expectation go, then they really find the value in the other college,” Even if you’re disappointed, you’ll probably find yourself happy at your second-choice school.
What to do if you are accepted
Congratulations, all your hard work paid off, but being admitted late will cost you. If you end up being accepted from the wait list, you’ll have to forfeit the deposit you made at the college where you enrolled. Students admitted from the wait list may not have the same financial aid or housing opportunities of those accepted during the first round. NACAC’s statement of student rights requires schools to answer students’ questions on how being on the wait list will affect housing and financial aid. Reevaluate the school and decide if you’re still interested enough to back out of the school where you’ve already committed.