November 4, 2002 - Paying for College When You're Already in College

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Paying for College When You’re Already in College

By Glenda K. Moehlenpah
November 4, 2002

Financing college is one of the most daunting aspects of attending; however it’s not so bad if you’re willing to plan. In this series of articles, we will explore ways to finance college at various stages of your life - from babyhood to post-graduation.

“Finally!” you say. After all, you’ve been reading the series, but you are already in college and you still don’t have enough money to pay for the next several years. Is there any help or hope available to you?

Review

Generally speaking it’s really late for most of the savings methods mentioned in Paying for College as a Baby and for the strategies mentioned in Paying for College When You’re Starting High School, such as advanced placement examinations and obtaining college credit while still attending high school. However it’s not too late for some of the options (such as financial aid and scholarships) mentioned in Paying for College When You’re finishing High School.

What else, you ask?

Rich Relatives

Your rich relatives may have been reluctant to set aside money when you were younger for fear that you might not end up being college material. And they may still be reluctant to give you the money for fear that you might spend it unwisely. However, perhaps they would consider making tuition payments directly to the university.

Borrow Only What You Need

Just because you might be able to borrow enough money to pay for all of the expenses of your college education from your freshman year through a Doctorate in Psychology, do you really want to have that large of a debt hanging over your head when you graduate? Remember, federal law requires you to repay student loans and the Bible says, “The rich rules over the poor, and the borrower is servant to the lender” (Proverbs 22:7, NKJV).

Spend Less

Wouldn’t you rather know that when you do start earning “real money” after graduation, that you’ll get to keep most it, rather than having it go for student loans? Here are a few ideas to help you spend less:

Dorm Rooms - Have you considered that it is possible to decorate your dorm room with something other than furniture from Macy’s, décor by IKEA and finishing touches from Nordstrom’s? Think about finding thrift stores in the really nice areas of town, making the Saturday morning garage sale circuit or using eBay (www.ebay.com). You could go for the eclectic look at a fraction of the cost. Furthermore, when you go back home for the summer, don’t just throw your stuff in the dumpster. Put it in storage and use it again next year, sell it at your own garage sale, or donate it to a charitable organization. You may want to even check out setting up a chapter for Dump and Run (www.dumpandrun.org).

Stay at Home - If you eliminate the cost of dorms entirely, and stay at home instead, you can save a bundle of money and not subject yourself to dorm food.

Eliminate Expensive Gadgets - Yes, I know, how will you ever be able to survive without your cell phone, PDA, or pager? Not to mention the CD/DVD player, radio, VCR, surround-sound stereo system, as well as the latest attractions by Sega or Nintendo.

Make Saving a Game - For further ideas on how to spend less, check out various websites devoted to the topic, such as www.tightwadmoms.com or www.stretcher.com.

Save on Taxes with the HOPE Credit

If you are enrolled at least half-time, qualified education expenses incurred in the first two years of post-secondary education may be used for a HOPE Credit of up to $1,500 per year per student (calculated as 100 percent of the first $1,000 and 50 percent of the second $1,000). But stay away from drugs - if you’ve been convicted of a felony drug offense, the HOPE Credit cannot be claimed for your education expenses.

Save on Taxes with the Lifetime Learning Credit

Subsequent to the first two years, if you take any college courses, you may qualify for the Lifetime Learning Credit of up to $1,000 per year per return (calculated as 20 percent of your expenses). For 2003, the Lifetime Learning Credit will increase to $2,000 per year. To claim either credit, your Modified Adjusted Gross Income cannot exceed $50,000 ($100,000 married filing jointly).

Save on Taxes with a Tuition Deduction

During the years 2002-2003, if your Adjusted Gross Income (AGI) exceeds the limits of the HOPE or Lifetime Learning Credits, but does not exceed $65,000 ($130,000 married filing jointly), you may be able to deduct eligible education expenses of up to $3,000. In the same year, you cannot both deduct the expenses and claim the HOPE or Lifetime Learning Credits. During the years 2004-2005, at the same AGI limit, you may be able to deduct up to $4,000, while if your AGI is between $65,001 and $80,000 ($130,001 and $160,000 married filing jointly) your deduction is limited to $2,000.

Caveats

While the tax information is valid at the time of this writing, the tax laws seem to change annually; therefore, you may want to check with your tax advisor! Also, if you’ve saved for your college education expenses in tax-free vehicles such as the Coverdell Education Savings Accounts or 529 plans, the expenses that are paid for with the tax-free withdrawals can’t also be used as the expenses claimed for the HOPE or Lifetime Learning Credits or the Tuition Deduction.

ninetyandnine.com

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Glenda K. Moehlenpah, CPA, CFP® is the founder of Financial Bridges (www.FinancialBridges.com), offering Fee-Only financial planning and investment advice to people from all walks of life on an hourly, as-needed basis.