How you and your parents fill out your tax forms makes
all the difference in how much aid you receive. A good plan for
paying for college focuses on minimizing the income and assets you
report during the year before you start college.
Education Tax Credits
You or your parents may qualify for one
of the following two programs created with the Taxpayer Relief Act
- $1,500 Hope Credit. During your first two years of college,
your parents will get a 100 percent tax credit for the initial $1,000
of your tuition and a 50 percent credit for the next $1,000. This
credit is phased out for joint filers earning between $83,000 and
$103,000, or single filers earning between $41,000 and $51,000.
- $2,000 Lifetime Learning Credit. This amount represents
a 20 percent tax credit for the first $10,000 of your tuition. There
is no two-year limit, and your parents can claim this credit even
when you go to graduate school. The same income levels as the Hope
Visit www.irs.gov and download form 8863 for details.
Student Income Protection
In the game of financial aid, student income is assessed
more harshly because students typically do not need the majority
of their earnings to pay for household needs, such as food and shelter.
To maximize financial aid, your parents should never put assets
in your name.
Student income has a $2,380 protection, and anything a
dependent student earns beyond this amount is assessed at 50 percent.
In simple terms, for every two dollars you earn above $2,380, you
lose one dollar in financial aid eligibility. What does this actually
mean for you? You’re better off not working during the year before
you enter college if you’ll earn more than $2,380.
Behind every rule is an exception, and there are two exceptions
regarding your income that may help you answer the age-old question: How
can I earn money for college without being penalized in financial aid?
Work-study jobs are typically on-campus jobs with very
flexible schedules that you can do during the semester, usually
for a maximum of 20 hours per week. The money you earn from a work-study
job is exempt from EFC calculation. No matter how much you earn
in work-study, not one dollar of that amount will ever decrease
your financial aid eligibility. In terms of federal needs analysis,
it is as if you never worked a day the entire year and had an income
This money should serve as a great incentive for you to
apply for work-study on the FAFSA. Many students don’t apply because
they think they can earn a better salary at a non–work-study position.
This may be true—but their non–work-study wages will hurt their
financial aid eligibility.
Some students answer no to the question on the FAFSA that
asks, “In addition to grants, are you interested in ‘work-study?’”
Students have the mistaken impression that by answering yes they
are forfeiting grant aid or that they will be obligated to accept
work-study. You can always decline work-study after it has been awarded.
However, it is difficult to acquire it once classes begin.
AmeriCorps offers full- and part-time positions in the
fields of education, the environment, public safety, and homeland
security. In addition to hourly or biweekly wages, participants
can earn up to $9,450 in college assistance for two years of AmeriCorps
service. This money is known as the AmeriCorps education award.
Both the wages and the education award are exempt from
calculation in the EFC. If you’re just a few months away from college
and have no way to pay for it without relying primarily on loans,
AmeriCorps can offer one of the best short-term strategies for delaying
and then paying for school. Many students have delayed college for
one year or more in order to serve in AmeriCorps and have come out
ahead in paying for college.
10 Ways AmeriCorps Can Help Pay for College
- 1. It pays members wages that are
excluded from EFC calculation.
- 2. It offers members an education award of up
to $9,450, which is excluded from EFC calculation.
- 3. It pays the interest accrued on current student
loans for members, and these benefits are excluded from EFC calculation.
- 4. Anyone looking to move to a new state to gain
residency should know that AmeriCorps pays travel expenses for members
- 5. It offers health care and child-care benefits
- 6. AmeriCorps*VISTA offers the option of a post-service
cash stipend of $1,200 for those who do not want an education award.
- 7. AmeriCorps*NCCC provides free room and board
at its five campuses across the country.
- 8. It offers positions in many fields, including
the environment, health and human services, public safety, and education.
- 9. Many of its programs have agreements with colleges
that allow members to earn college credit while serving.
- 10. The National Service Alumni Network, at www.nsan.org,
offers AmeriCorps alumni education and career services following
Spend Your Allowance
Let’s say you’ve just received $1,000 in graduation money
and have not yet completed the FAFSA. Because cash that you have
on hand is considered an asset, the federal needs analysis will
assess this $1,000 at a rate of 35 percent when calculating your
EFC. That results in a significant decrease in financial aid eligibility,
especially since this money will probably be long gone before your
first tuition bill arrives. In fact, you’ll probably spend the entire
amount on things like clothes, appliances, and supplies before college
The less cash you have on hand when you complete your
FAFSA, the more financial aid you’ll receive.
Still celebrating over the advice to shop to your little
heart’s content? No so fast. If possible, you should do your best
to decline gifts of money. That’s right: To maximize financial aid,
you should just say no to gifts of cash during the base income year.
Otherwise, you’ll wind up giving 35 percent of that money to pay
for college, and you’ll decrease your eligibility for aid.
Remember: You and your family should take
every opportunity to pay down consumer debt.
Even though the primary responsibility of paying for college
usually rests with both you and your parents, there may come a time
when you’ll need to get by on your own. When you reach this point,
the Department of Education considers you independent, and they’ll
no longer include your parents’ income and assets when calculating
financial aid. This generally means you’ll receive more assistance.
Sound ideal? Sure it does. But becoming independent isn’t easy.
Seven Questions to Determine If You Could Be an Independent:
- 1. Will you be 24 years old by January
1 of the current school year?
- 2. At the beginning of the current school year,
will you be working on a master’s or doctorate program?
- 3. As of today, are you married?
- 4. Do you have children who receive more than
half of their support from you?
- 5. Do you have dependents who live with you and
receive more than half of their support from you, and will do so
until the end of the school year?
- 6. Are both of your parents deceased? Are you,
or were you until the age of 18, an orphan or ward of the court?
- 7. Are you a veteran of the U.S. Armed Forces?
In terms of short-term strategies, you have very few options
for being able to answer yes to most of these questions. However,
if you were planning on getting married in the summer before college
begins, it might be in your best interest to delay completing the
FAFSA until after the ceremony. But remember: even though your parents’
income will not be included in the needs-analysis formula, your
spouse’s financial information will be.