4th Quarter 2019

Tax Breaks for Education at Any Age

Whether you’re saving for kids’ college, paying off your own student loans, or planning to return to school, there are several tax-friendly ways to pay for higher education.

Tax-free college savings: You can contribute to a 529 college-savings plan for your children — or for yourself if you want to go back to college or graduate school. The money can be used tax-free for tuition, fees, equipment, and room and board. You can even tap the account tax-free for off-campus housing, if you attend school at least half-time. (Ask the college’s financial aid office about its annual room and board limit.) There’s no time limit for using the 529 money, and you can replace the account beneficiary with another family member if you change your mind. You may even get a state income-tax break for your contributions. See www.collegesavings.org for links to each plan.

Student loan tax deduction: Up to $2,500 in student-loan interest you pay each year may be tax-deductible, depending on your income. In 2019, you can take the full deduction if your income is below $135,000 if married filing jointly, or $65,000 if you’re single or file as head of household. The deduction phases out entirely for joint filers earning more than $165,000, or singles and head of household earning more than $80,000.

Special loan repayment programs: You may qualify for special loan-repayment programs that reduce your payments or forgive your loan balance. For example, the public service loan forgiveness program forgives the remaining loan balance for certain public-sector employees who have made payments on federal direct student loans for 10 years. See the Department of Education’s Public Service Loan Forgiveness Help Tool for more information. Also see the repayment section of www.studentloans.gov for more information about other loan repayment programs.

Tax breaks for tuition: The American Opportunity credit can be worth up to $2,500 per student each year for tuition and fees paid in the first four years of college. The credit is calculated as 100% of the first $2,000 of qualified education expenses, and 25% of the next $2,000 of qualified education expenses. The Lifetime Learning credit can be worth up to $2,000 for tuition and fees paid for graduate and professional degree courses and undergraduate tuition beyond the first four years of college. The credit is worth 20% of the first $10,000 of qualified education expenses. See IRS Publication 970, Tax Benefits for Education, at www.irs.gov for more information about these credits and the income limits to qualify.

Return to top