Personal Finance in Your 20s & 30s For Dummies. Eric Tyson

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СКАЧАТЬ taxpayers or between $140,000 and $170,000 for married couples filing jointly.) Loans must be for qualified education expenses at an eligible higher-education institution such as a college, university, vocational or technical school, or other post-secondary educational institution eligible to participate in student-aid programs overseen by the U.S. Department of Education. The student must have taken out the loan during a period when they were enrolled at least half-time in a degree program.

       Tax-free investment earnings in special accounts: Money invested in so-called section 529 plans is sheltered from taxation and is not taxed upon withdrawal as long as the money is used to pay for eligible education expenses. Subject to eligibility requirements, 529 plans allow you to sock away $250,000+. Please be aware, however, that funding such accounts may harm your potential financial aid.

       Tax credits: The American Opportunity (AO) credit and Lifetime Learning (LL) credit provide tax relief to low- and moderate-income earners facing education costs. The AO credit may be up to $2,500 per student per year of undergraduate education, while the LL credit may be up to $2,000 per taxpayer. Each student may take only one of these credits per tax year, and they are subject to income limitations. And in a year in which a credit is taken, you may not withdraw money from a 529 plan or take a tax deduction for your college expenses.

      A number of so-called miscellaneous education and career-related expenses are deductible on IRS Form 1040 Schedule A. These include

       Educational expenses: You may be able to deduct the cost of tuition, books, and travel to and from classes if your education is related to your career. Specifically, you can deduct these expenses if your course work improves your work skills. Courses required by law or your employer to maintain your position are deductible if you pay for them. Continuing education classes for professionals may also be tax deductible. Note: Educational expenses that lead to your moving into a new field or career aren’t deductible.

       Job searches and career counseling: After you obtain your first job, you may deduct legitimate costs related to finding another job within your field. You can even deduct the cost of courses and trips for new job interviews — even if you don’t change jobs. And if you hire a career counselor to help you, you can deduct that cost as well.

      Weighing the costs and benefits of education expenditures

      If you are considering more higher education, it is imperative to weigh what this education will actually enable you to do in the workforce. (These issues also should be contemplated if you have kids and will be making higher-education expenditures on their behalf.) Simply spending more on education may not be the answer.

      Americans spend a lot of money on obtaining traditional college degrees. Yet, a good number of students fail to graduate with the education and training that they need to secure good, available jobs. A survey of those (especially young adults) currently unemployed and underemployed supports these concerns. There are good-quality job openings, but the young adults available to work lack the proper training and educational background to do those jobs.

      Simply put, too much money is wasted on higher education that is failing to train young adults to qualify for the best available jobs.

      Just as government programs encouraged and enabled excessive mortgage borrowing and contributed to a housing bubble in the late 2000s, the same is happening with higher education.

      

When considering an advanced or undergraduate degree, try as best you can to research the value of particular colleges and degree programs. There are numerous resources for doing this. My new book, Paying For College For Dummies (Wiley) includes lots of material on fast-growing and cheaper alternatives to traditional four-year colleges and which ones lead to great jobs and careers. And it also covers, of course, more traditional higher-education options.

      Among other resources for rating and evaluating traditional higher-education options, those which I’ve reviewed and found useful are the following:

       Kiplingers’ “Best Value Colleges” considers numerous factors including student-to-faculty ratio, the test scores of incoming freshmen, four-year graduation rates, likelihood of graduating students with financial need, affordable sticker prices, generous financial aid and consistency of that during time at school, and low student debt at graduation. See www.kiplinger.com/college-rankings.

       PayScale, the large online salary and benfits information collector, ranks colleges and majors on a return-on-investment basis over 20 years. Visit www.payscale.com/college-roi.

      Making the most of student loans, grants, and other financial aid

      If you’re still in school or considering going back to school, a host of financial-aid programs, including a number of loan programs, allow you to borrow at reasonable interest rates. Most programs add a few percentage points to the current interest rates on three-month to one-year Treasury bills. Thus, current rates on educational loans for students are in the vicinity of rates charged on fixed-rate mortgages (parent loan rates are a little higher). The rates are also capped so the interest rate on your student loan can never exceed several percent more than the initial rate on the loan.

      A number of loan programs, such as unsubsidized Stafford Loans and Parent Loans for Undergraduate Students (PLUS), are available even when your family is not deemed financially needy. Only subsidized Stafford Loans, on which the federal government pays the interest that accumulates while the student is still in school, are limited to students deemed financially needy.

      

Most loan programs limit the amount that you can borrow per year, as well as the total you can borrow for a student’s educational career. If you need more money than your limits allow, PLUS loans can fill the gap: Parents can borrow the full amount needed after other financial aid is factored in. The only obstacle is that you must go through a credit qualification process. Unlike privately funded college loans, you can’t qualify for a federal loan if you have negative credit (recent bankruptcy, more than three debts over three months past due, and so on). For more information from the federal government about these student-loan programs, call the Federal Student Aid Information Center at 800-433-3243 or visit its website at studentaid.gov.

      If you (or your parents) are homeowners, you may be able to borrow against the equity (market value less the outstanding mortgage loan) in your property. This option is useful because you can borrow against your home at a reasonable interest rate, and the interest is generally tax-deductible on up to $100,000 borrowed. Some company retirement plans — for example, 401(k)s — allow borrowing as well.

Parents are allowed to make penalty-free withdrawals from individual retirement accounts if the funds are used for college expenses. Although you won’t be charged an early-withdrawal penalty, the IRS (and most states) will treat the amount withdrawn as taxable income. On top of that, the financial-aid office will look at your beefed-up income and assume that you don’t need as much financial aid. Because of these negative ramifications, funding college costs in this fashion should only be done as an absolute last resort.

      

In addition to loans, a number of grant programs are available through schools, the government, and independent sources. СКАЧАТЬ