A multitude of rumors exist about free money for college. Unfortunately, many of these are just rumors. Be wary of individuals offering to find grants, scholarships and other financing for a fee. If there are official grants, scholarships, etc. available, you or the financial aid office can find them. The real work is in the diligent pursuit of grants after they have been located, and that work falls squarely on your shoulders.

Home Equity Loan

A home equity loan is often a viable option for financing a college education. Always check the loan company's history to insure you are dealing with a legitimate company. Once you have the cash, it matters less; but with a line of credit you are depending on the lender to provide the cash upon request. If dealing with a third party source, there is risk that application fees can be a scam. The Better Business Bureau has a list of complaints against unsavory companies. Check with an accountant to confirm that the interest is tax deductible.

Athletic Scholarships

Parents need to maintain a realistic outlook. If an athlete has the necessary ability, colleges will be aware of the athlete and offer a scholarship. Promoters who guarantee a scholarship for a fee often mislead the client. There are over 1800 websites dealing with this topic.

Recognize the student's true ability and match the athlete's ability with the school. Many athletes choose a "smaller division" school to pursue an education while continuing to play a sport. Also be aware of partial scholarships that are available. These partial scholarships can be combined with other forms of financial assistance offered by the school's Financial Aid Office.

A student must be cleared by the NCAA Initial Eligibility Clearinghouse in order to receive a scholarship. Complete this process as soon as possible.

Points to remember:

1. Hesitate to enroll in a school after only considering athletics.
   Education lasts a lifetime.
2. You have the ability to publicize a student's talents and research schools.

Credit Cards

The quickest method to pay a semester's tuition would be a credit card. Experts advise against this method. The interest rates are much higher than other types of financing. Despite the best intentions of paying off the debt, credit card debt and ensuing interest always seem to grow.

Transfer Scholarships

Many schools offer transfer scholarships of varying sizes to attract students from other schools with good credentials. Contact the Financial Aid Office of the college to inquire about the scholarships.

Military Scholarships

For a commitment to the military after college, ROTC scholarships are available.
Contact a branch of the armed services and discover various types of financial assistance available. The amount of money varies according to the individual's abilities and the number of years committed to the service.

One plan makes college very affordable for the individual who is willing to commit to the military before heading to college. This program matches a dollar for each dollar saved during service.

Protect yourself - always get offers in writing.

State Sponsored Tax-Free College Savings Plans

This is one area of the new legislation that provides relief to middle-income taxpayers who are good planners and are working hard to educate their children.

Old rules:

Parents are able to save for college through state sponsored savings accounts called "529" plans. The income tax on the earnings is tax deferred, similar to a retirement account. The prepaid tuition plans offered by state institutions allow parents to lock in their tuition cost, and defer tax on the increases in value of the tuition contract until the child starts college.

New rules:

• The state sponsored savings accounts are no longer just tax deferred. Beginning in 2002, they become tax-free.
• The increase in value of prepaid tuition plans becomes tax free, beginning in 2002.
• Tax advantaged prepaid tuition plans will be allowed for private colleges beginning in 2004.
• Transfers between 529 plans will be allowed without the requirement of a change in beneficiary. Allowing rollovers once every 12 months will facilitate investment management.
• Dollars spent in excess of the tax-free 529 plan withdrawals will be eligible for the Hope and Lifetime tuition credits.

States offer these plans to help a person save money for college expenses. The plans vary state to state. A drawback could be the possible desire of the student to attend an out of state school. Some states make better accommodation than others for change in plans.

Tax Deduction for College Costs

Should you claim the Hope Credit or the Lifetime Credit? Bring on the tax software, because now there is a third option: the College Tax Deduction. This is a temporary deduction scheduled to expire after 2005. It allows tax deductions, without having to itemize, for up to $3,000 of eligible expenditures beginning in 2002. The amounts go to $4,000 in 2004 and 2005, with a $2,000 deduction available to taxpayers at higher phase-out levels.

One attraction of this deduction is that it is available to taxpayers at higher income levels. While the Hope and Lifetime Credits start phasing out at income levels of $80,000 on a joint return and $40,000 for singles, the new deductions don't start phasing out until $130,000 on a joint return and $65,000 for singles.

Keep in mind that these amounts are tax deductions, rather than credits, when drawing comparisons to the Hope and Lifetime Credits. A dollar of credit is worth significantly more than a dollar of deduction. When choosing between the credits and the deduction, be aware that the credits can be claimed by the student as well as the parent, sometimes circumventing the income limitation.

Employer Tuition Assistance

Beginning in 2002, graduate courses will qualify for the exclusion. The scheduled expiration of this credit after 2001 has been permanently removed.

Education IRA's

Another huge plus for working parents with education to fund. Beginning in 2002, the dollar amounts of contributions is increased from $500 to $2,000 per year and withdrawals are allowed for elementary and high school tuition, in addition to the college level tuition, which is currently allowed. Plus, the income level phase-outs have been raised. The range for couples will be between $190,000 and $220,000.

Education IRA contributions are allowed for children under the age of 18. The contributions are not tax deductible, but withdrawals are not taxed. The result is tax-free earnings while funds are in the account. An additional technical benefit is that the date for making contributions has been extended to April 15, allowing parents the opportunity to first determine whether they qualify under the income limitations.

Student Loan Deductions

Beginning in 2002, the deduction for interest on student loans will be more widely available. The limitation to the first 60 months of interest payments is eliminated and the income levels for phase-out are increased. For single taxpayers, the phase-out has been from $40,000 to $55,000, but will change to $50,000 to $65,000. For joint returns, the phase-out has been from $60,000 to $75,000, but will change to $100,000 to $130,000.

Hope Scholarships

• National: The federal government offers a tax deduction of $1,500 during the first two years of college. Lifetime Learning Credit tax credits are available for subsequent years.
• State: Some states offer Hope scholarships. They are well publicized. Go to your state website to learn the specifics.

TIPS

• Parents need to use caution in withdrawing money from IRAs, 401s, and other retirement plans. The penalties and taxes for early withdrawal are heavy.
• Be cautious when cashing in investments. Consider the capital tax gains to be paid and the income that would have been received from the investments if left intact.
• A home equity loan, bank loan, or money from a savings account may be preferable.

Printer Friendly Version