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Sharon Reed AbboudFederal Tax Benefits Help You Pay for College

By Sharon Reed Abboud

Returning students should be aware of available Federal tax benefits that help pay for higher education. These benefits and deductions are explained in the Internal Revenue Service (IRS) Publication 970, Tax Benefits for Education.

As the April 15 deadline looms ahead, students should carefully review their potential tax deductions. As IRS regulations change, some benefits may or may not apply to an individual or their dependent depending on the particular financial and personal situation. It may be a good idea to consult a professional tax advisor, who may be able to help you lower your taxable income, allowing you to qualify for certain income based benefits.

According to Erin L. Korsvall, spokesperson for Sallie Mae, “Deciphering tax codes may not be your idea of a good time, but it is worth it to learn if Uncle Sam can put some money back in your pocket."

“Tax season is the time of year when going to college pays you,” Korsvall
added. “If you are student, parent, or student loan borrower, it is worth the
‘extra credit’ work to find out what you are eligible for.”

IRS Publication 970 outlines several ways taxpayers may save on their education, including:

*Scholarships, Fellowships, Grants and Tuition Reductions
*Hope Credit
*Lifetime Learning Credit
*Deduction for Higher Education Expenses
*Student Loan Interest Deduction
*IRA Withdrawals/401k Withdrawals
*Employer Provided Assistance Benefits

“There are four tax benefits for higher education: two credits and two deductions," Korvall explained. "The Hope Scholarship Tax Credit provides up to $1,500 in tax credit for freshmen and sophomores. The Lifetime Learning Tax Credit provides a tax credit of up to $2,000 per family for anyone in college. The Tuition and Fees Tax Deduction allows you to deduct up to $4,000 tuition and fees. The Student Loan Interest Tax Deduction allows you to deduct up to $2,500 in student loan interest depending on your income.”

Maggie Doedtman, spokesperson and enrollment agent for H&R Block World Headquarters, advises taxpayers to “carefully consider his or her eligibility for these benefits because they can greatly affect the affordability of higher education.” According to Doedtman, the the most powerful tax breaks for students are the credits - the Hope and lifetime learning Credits - because they let you reduce your taxes dollar for dollar, rather than reducing your income. Additional infomation and tax credit tools for lifelong learners are provided on the H&R Block Web site.

According to Sam Wilson, assistant vice president for customer assistance at TG, a nonprofit corporation that assists students in obtaining college loans, “The primary tax benefit of financing (as opposed to just paying for) your college education is the student loan interest deduction, available to students who borrow to finance their college education. Like other allowable interest deductions in the tax code, it works by reducing taxable income, similar to the mortgage interest deduction.”

“In addition,” said Wilson, “there are college savings instruments like the Coverdell Education Savings Account, 529 plans and state pre-paid tuition plans that may have associated tax benefits, but usually those benefits apply to parents who are paying for a dependent student to go to college and not to independent adult students.”

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