This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Uncle Sam Wants to Help You Pay for College: Tax Tips

NEW YORK (TheStreet) -- Millions of students have just begun college, meaning that millions of parents and grandparents -- and some students all on their own -- have begun paying for what can now cost more than $100,000 over the course of four years. That's a very expensive proposition, and as a result, maximizing the tax code as it relates to college costs has never been more critical.

Statistics indicate that the average annual cost of an undergraduate college education -- including tuition, room and board, and books and supplies -- is $17,563 for public colleges and universities, $27,854 for private, for-profit schools, and $33,969 for private non-profit institutions.

Scholarships and grants can cover some of the costs, but the majority of expenses will be "out of pocket" for most students. Many will turn to student loans to finance their education. According to the Federal Reserve Bank of New York, the amount of student loan debt among borrowers under age 30 has more than doubled since the beginning of 2005 to $292 billion and the average student loan debt has risen 56 percent to $20,835, as of the end of March of this year.

Uncle Sam can offer help in paying for college via the Tax Code. The American Opportunity Credit, which is scheduled to expire at the end of 2012, could provide a college student who, at the beginning of the tax year, has not yet completed the first four years of post-secondary education (determined not by calendar year, but by the student's status of freshman, sophomore, etc.), a credit of up to $2,500, $1,000 of which may be refundable.

The credit is 100% of the first $2,000 of qualified expenses and 25% of the next $2,000. In order to get the maximum credit you must have at least $4,000 in qualified expenses. The $2,500 maximum is per student and not per return. So if you have two kids in college at the same time you can get up to $5,000 from Uncle Sam.

In addition to tuition and fees you can also include required course materials, which includes books, supplies and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.

The phase-out range for the AOC is "modified" Adjusted Gross Income of between $80,000 and $90,000 for single taxpayers and $160,000 and $180,000 for joint filers.

To qualify for the American Opportunity Credit a student must be enrolled in a post-secondary education program at an "eligible institution" that leads to a degree, a certificate or another recognized credential at least half-time for one semester during the year. An "eligible institution" is an accredited college, university, vocational school or other accredited institution able to participate in a student aid program administered by the U.S. Department of Education. The student must not have a felony conviction for possession or distribution of a controlled substance.

Only the person claiming the student as a dependent can claim the credit. This can be the student if he/she is not claimed as a dependent by his/her parents or anyone else. It doesn't matter who actually pays the tuition. If the grandparents pay all the student's expenses, but the parents claim the student as a dependent, the parents get the credit.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,563.30 -317.06 -1.88%
S&P 500 1,930.67 -39.40 -2.00%
NASDAQ 4,369.7730 -93.1290 -2.09%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs