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The days are getting shorter and mornings are cooler; school buses are now encountered as part of the morning commute. Fall is upon us and colleges will soon be in full session. Following are some tax tips that parents and college students may find helpful come next spring to take full advantage of tax deductions and credits for families who of college students.

1.    Save all receipts related to attending post-secondary educational institutions.

2.    Students who are under age 24 at the end of the year and enrolled full-time (at least 5 months) can and should be claimed as a dependent on their parent's federal income tax returns.

3.     American Opportunity Credit can be up to $2,500 per eligible student and for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. Eligible taxpayers have modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

4.    Lifetime Learning Credit can be up to $2,000 (20% credit) for qualified education expenses of up to $10,000 paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).

5.    Tuition and Fees Deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for eligible students if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).

6.    Student loan interest deduction if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct up to $2,500 in interest paid on loans used to pay for higher education.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you. The American opportunity credit is calculated per student while the lifetime learning credit, tuition and fees deduction and student loan interest deduction are all calculated per household/tax return.

For more information, visit the Tax Benefits for Education Information Center at or check out Publication 970, Tax Benefits for Education, which can be downloaded at or ordered by calling 800-TAX-FORM (800-829-3676).. Penn State Extension's Your Money Your Taxes website will also provide you with additional information about federal and Pennsylvania income taxes.

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Talking Taxes

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Talking Taxes


April 15 is the annual deadline for filing your federal and Pennsylvania State Income Tax returns. Now is a great time to use these documents to assess your financial situation and plan for your 2011 income tax bill. If you received a refund, do you know why? Take some time to review your return.


Let's start with your adjusted gross income. Do you expect your income to increase or decrease compared to last year? One way to decrease your AGI is to contribute to an employer sponsored retirement plan or contribute to a traditional IRA. Self-employed individuals also have the opportunity to contribute to several other types of retirement plans that allow for tax avoidance today.


Next consider how many personal and dependent exemptions you will have. Each household member is worth $3,650 in exemptions. In other words for a family of four - $14,600

Also consider your filing status. Married filing joint and under age 65 is $11,400, if both are age 65 or over $13,600.


Children under the age of 17 are worth $1,000 in child tax credit. If your child will turn 17 in 2011, your income tax bill could be increased by this $1,000. Children who are enrolled in college and meet certain guideline can qualify their household to receive up to $2,500 in the American Opportunity Tax Credit, $1,000 of which is refundable. In order to receive this credit the household must claim the student as a dependent - which parents can do as long as the student is under age 24 and considered a full-time student for at least 5 months of the year.


Retirement savers credit - if you meet income guidelines, contributions to employer sponsored retirement plans, traditional IRA's and even Roth IRA's can be included in calculating this credit which reduces your tax bill.


Earned income tax credit - whether you work for someone else or for yourself - if you have earned income and meet income guidelines, you may be eligible for this tax credit, even if you don't owe any federal income taxes!


Your 2011 federal income tax bill may be up to $800 more than your 2010 bill due to the expiration of the "Making Work Pay" tax credit. This credit was calculated as 6.2% of your earnings up to a $400 limit per worker. While you won't see it on the 2011 tax return, somewhat in lieu of this credit a change was made to your federal social security tax withholding. Normally the employee share of contributions made to Social Security is 6.2% of wages up to a certain income limit. For tax year 2011 ONLY, this has been reduced to 4.2%. You may have noticed a slight increase in your paycheck at the beginning of the year. Remember, come January 1, 2012, your check will be reduced by 2% as your contribution to Social Security will increase from 4.2% to the usual 6.2%.


Finally, if your refund includes paycheck withholdings, consider making adjustments to your W-4 form filed with your employer. Completing that simple form confuses many workers and the IRS is trying to make it less so. has a link to an online withholding calculator that will help you determine the correct income tax withholding for your situation. If you do decide to change your withholding to reduce the amount of taxes taken from each pay (stop paying taxes you don't owe!) also make plans for what you will do with this newfound money. These funds could be used to establish or increase your emergency fund, pay off credit card balances, pay off other types of debt or maybe even help fund a well-deserved vacation.


For more details on income taxation, check our extension website





Yes, I know it's still June. Kids have barely been on summer vacation for 3 weeks so it truly is too early to even discuss back to school shopping. I want to talk about a different kind of school shopping, purchasing post-secondary education. Across the nation, parents, teachers and school boards promote the concept of college to their students. The overwhelming message is that in order to be successful, you must have a college education. And while it is true, many successful people DO have a college education, not all students will succeed in college, not all career fields require a college education and not all families can afford to pay for post-secondary education. There are many successful adults who have varying levels of education and I am one of those people working in a field quite different from my undergraduate degree.

Since I work for a land grant university, I don't mean to diminish the importance of further education, just noting that college is not for everyone and the first school you choose may not be right for you. College costs should be a factor in making the post-secondary decision, not just how great the football team is or the average salary of graduates in your chosen field. I find many students and parents who shoot first and ask questions later. Parents expected their students to excel in academics and that their kids would go to college. For many, getting accepted was the easy part - paying for it could be their downfall. The December 3, 2008 Christian Science Monitor online report citing the National Center for Public Policy and Higher Education nearly 50% of  American students attending four-year colleges don't finish within six years. Why? Numerous reasons including financial.


Have you priced the costs of colleges Junior plans to attend? Here is something to think about. Note that Clarion and Penn State are just projections of 2009-2010 pending passage of the Pennsylvania state budget and approval of rates by the respective institution's boards of trustees.





4 years


6 years





















out of state

















Penn State










out of state



























When costing out attendance at state related universities, remember that the difference between the out of state rates and in-state rates is financial aid provided by the taxpayers of our fair Commonwealth. The out of state rate is the ACTUAL rate of tuition and fees. Even with this significant "savings" the total cost of college for one student is sizeable, but consider if you have several children planning to attend. Oh, and this chart doesn't consider tuition inflation.


Without proper planning and actions, students and their families are taking on a sizeable financial burden that can hobble them for 10 years or more. Following graduation, many students, as early adults are thinking of buying cars, homes, marriage, starting a family, starting a business or returning to grad school. Will they be able to accomplish those goals and repay their student loan debts?


Here's the latest news on student loans. Consider how it fits into your family's financial picture as well as your student's future. Each July 1 interest rates on new Stafford loans are announced. These interest rates remain in effect for the loan term. This July 1, undergraduate subsidized (for students demonstrating financial need) Stafford loans drops to 5.6% from the current rate of 6%.  Unsubsidized Stafford loans 6.8%. However, all Stafford borrowers will get a break on upfront borrower fees, On July 1, the maximum fee that lenders will be permitted to charge on Stafford loans disbursed between July 1 and June 30, 2010, will drop to 1.5% from 2%. Upfront fees are deducted from the loan amount when the loan is disbursed.

Previously unconsolidated federal student loans issued before July 1, 2006 interest rates will drop from 4.21% to 2.48%. Interest rates on federal PLUS loans -- Parent Loan for Undergraduate Students -- issued before July 1, 2006, will also be reduced from 5.01% to 3.28%.

Borrowers who consolidate these loans after July 1 will lock in a rate of 2.5% for the life of the loan. Borrowers who are in their grace period, the six-month interval between graduation and the start of repayments, can lock in a rate of 2%. PLUS loan borrowers who consolidate can lock in a rate of 3.38%. While it may be difficult to find a lender willing to consolidate loans in today's market you can still consolidate your loans through the Federal Direct Loan Program.

There are two types of student loans: Federal Family Education Loans, which are offered by private lenders and guaranteed by the government, and Federal Direct student loans, which are offered directly to students at schools that participate in the direct lending program. You can consolidate FFEL loans through the Federal Direct Loan Program. You can find more information at

If your student will be starting college in the summer or fall of 2010, it's not too early to familiarize yourself with the financial aid process including completion of the Free Application for Federal Student Aid, or FAFSA. Advanced preparation in knowing what information is required will save you time and frustration the first time you complete the FAFSA. The online version carries forward some of your data year to year which reduces some of the frustration. To learn more check out


A college student acquaintance of mine is home for the summer and jobless. I don't know a whole lot about their family situation, but if they are like most families, paying for college requires the student max out on loans, possible grants and perhaps the parents have even signed for a parent loan. This student is transferring from a private college where she spent the past two years to a state college where she will have a different major, and a possible extra semester or two. over the course of funding her college she will amass approximately $22,500.

Preliminary data from the 2007-08 NPSAS suggests that the average amount of debt among undergraduate seniors at 4-year institutions has increased to about $22,500. ( Using the current student loan interest rate of 5.6%, once she graduates she will be obligated to a $245 monthly payment for the next ten years. In the meantime we hope she can get a job in her field and one that will pay here enough to not only pay back the student loan, but also help finance her first car, get her into an apartment, maybe get married and start a family. Oh, and her career field will require that she have a master's degree within a few years of starting work. Now here employer may provide some assistance with those payments, but possibly not.

So, you may be asking, where does the $1,100 decision come in? And what about her job prospects in this down economy? Our community streets department has a job opening for currently enrolled college students. (Probably funded by the Pennsylvania Higher Education Assistance Agency PHEAA). When I saw the ad in the newspaper, I called her and asked if she subscribes to the paper and if she saw the ad. She answered in the affirmative to both questions. It was her next statement that set me back, leaving me speechless. "I can't get up that early. I'd have to be at work by 6:00 a.m." So I did some calculations, The summer assistant at my office can earn $3,600 through PHEAA. If the streets job would pay that much our student in question would not have to borrow the $3,600 she could earn. By making the decision not to apply for the job, she has made the decision to pay back a loan in the amount of $3,600 and an additional $1,100 in interest! ($3,600 at 5.6% paid monthly over 10 years.) That is the "opportunity cost" of sleeping in this summer. Sleep in today, to work extra hard in the future to retire those debts.

Saving and Paying for College.


"What do you want to be when you grow up?" is a question commonly posed by adults to youngsters. They do not expect to hear the sad, dejected response of, "An unemployed college graduate with twenty thousand dollars in student loan debt!" But in fact, the expected response of, "a doctor, a lawyer, a teacher, or a nurse" implies the attainment of a college degree. While not all career fields mandate a four-year degree, most do require advanced education beyond high school. And those years of education come at a cost.


Over the past 25 years, tuition inflation has far outpaced the rising prices of gasoline and healthcare. According to a special report by CNN's Penelope Wang, tuition rates grew four times faster than overall inflation. The Center for Economic and Policy Research reported that in 2004, 2/3 of public college seniors graduated with an average debt load of $17,600.


College is expensive. How expensive? A recent check for out-of-state tuition at Penn State's University Park campus reveals a cost for 4 years of around $100,000. In-state tuition for the same four years runs about $54,000. The $46,000 difference in cost is "financial aid" subsidized by Pennsylvania taxpayers for Pennsylvania residents attending a school in their home state. Despite this "break" many families are hard-pressed to finance the education of one student, much less his or her siblings.


When thinking about saving and paying for college, there are a lot of options. The earlier you get started planning and saving, the better prepared you will be when it comes time to move Junior into his freshman dorm room. First, be realistic about what you will be able to set aside for college, taking into account all your other financial obligations. Avoid reducing contributions to your retirement plan in order to save for college. While lenders can make college affordable to your student, it's unlikely when you are of an advanced age you will find lenders to assist you in financing your retirement!


Generally, you have four college funding options (excluding those rare sports scholarships!) Savings, grants, scholarships and loans.


U.S. Savings Bonds are a great way to start saving. Carefully read and follow the rules regarding tax exemption of interest on bonds used to pay for education. Bonds are a safe, secure way to grow a college fund with interest tax-deferred for up to thirty years. You have choices between EE and I bonds and if titled correctly, do not affect your student's eligibility for other types of financial aid. Check the website Pennsylvania's Section 529 plan provides another great way to save for college.


Grants are funds provided to assist with college bills and do not need to be repaid. Generally, they are only available to individuals of meager means. Scholarships are often available within your community as well as from education institutions. Various applications must be completed and eligibility requirements met to access these funds that do not need to be repaid.


Despite your best efforts of saving and taking advantage of other forms of funding, most families find themselves having to borrow money to pay for college. Because there is a limit on how much students can borrow, parents often bear the burden of borrowing to make up the deficit. Some families who, with the best of intentions, borrowed to help their oldest child have found their financial situation prevented them from assisting younger siblings. Finding yourself in this situation creates not only financial but emotional turmoil as well.


Regardless of the age of your scholar, start the conversation today about your expectations of their future and how to finance it. College is expensive and might be financially out of reach. That doesn't mean dreams of attending college are dashed. It does mean additional homework is necessary to assure that the expenses incurred will pay for themselves in the long run. In the business world it's called return on investment or ROI. Is it worth it to go deep in debt to attend a well-recognized institution? Or would your student do just as well at a less-pricey, less prestigious school? Does their career interest even require a four-year degree or would other types of education qualify them for entry into their chosen career field? If your college graduate can't immediately get a job upon graduation and start repaying loans, wouldn't you rather they owe $20,000 instead of $50,000?


Recently I talked with a young woman who, along with her husband, graduated from a well-known out of state college and were starting careers and grad school. Planning to eventually start a family, they have been looking to buy a home. She shared their frustration that while they have excellent credit, no local banks would give them a mortgage. Further into the discussion she revealed that together they owe over $100,000 on their students loans. It appears they already have the mortgage, but it's not financing a house! The decision to incur that amount of debt so early in their working lives may hobble them financially for at least the next decade. By developing and following a family college financing plan, you can avoid this type of situation and launch your student successfully with minimal debt.

August 2011

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