Student Loans and Taxes

Having to use student loans isn’t always a bad option as you might think. You may qualify for certain incentives and tax breaks. Not only can you sometimes deduct the interest you pay on your student loans, you might even be able to deduct certain expenses and fees associated with your education. And, the government has special programs to help out, too, like the HOPE Scholarship and Lifetime Learning Credits. Your employer may even provide additional incentives. So, pursuing higher education can pay off for you in many ways.

Deducting Student Loan Interest

Most people dread tax season. However, if you have student loans, you have a reason to smile. You can deduct some, if not all, of the interest you paid on your educational loans. You might be able to deduct up to $2,500 of the interest you paid on a student loan last year. By doing so, you’ll reduce your overall taxable income. There are certain filing restrictions and income limits that apply. Check with your tax advisor to see if you qualify.

HOPE Scholarship

The taxpayer Relief Act of 1997 provides for the HOPE Scholarship. The HOPE Scholarship provides $1,500 to make the first two years of college universally available. There are tax credits associated with the HOPE Scholarship, too. For the first two years of college, you may be eligible for a tax credit of 100% of the first $1,000 in tuition and fees and 50% for the second $1,000.

Lifetime Learning Credits

Lifetime Learning Credits are for upper classmen who have completed their first two years of college or taking classes to upgrade your job skills. A family can receive a 20% tax credit for the first $5,000 of tuition and fees through 2002 and for the first $10,000 after 2002.

Employer-Provided Education Benefits

Your employer has a vested interest in your continuing your education. By doing so, you bring enhanced skills to your job function. Employers can “reward” employees who are enrolled in certain programs by providing tax benefits. For example, you may be able to exclude up to $5,250 of employer-provided education benefits from your taxable income. Check with your employer to see what benefits you are eligible to receive.

Education Savings Accounts

The government encourages you to save for your education, too. For each child under 18, a family may deposit up to $500 into an Educational IRA. Earnings accumulate tax-free and you don’t have to pay taxes when you withdraw the money to use it for tuition, fees, books, equipment, and room and board.

So you can see, there are many different areas in which you can save money on your taxes for college. However, each of these opportunities have strict regulations that you need to be aware of. Don’t just guess on your taxes. Doing so can cause serious problems later down the line for you and your family. Don’t risk it and if you can’t understand this tax business, hire someone to go over your monetary concerns with you. A knowledgeable family member will work as well!