| December 1998 New ways to save
and pay for college
Whether you're the parent of a newborn or an adult thinking about going back to school,
new developments in financial aid and tax laws have made paying for a college education a
little easier.
These developments include a new state education savings program, changes in IRA rules,
two new tax credits, and increased Pell Grant awards and eligibility. All are in response
to steadily rising costs of attending an institution of higher learning and the
increasingly heavy debt burden carried by college students.
Here's the lowdown on new ways to save and pay for college:
- Montana Family Education Savings Program. Created by the 1997 Montana Legislature, the
Family Education Savings Program allows families to prepay for a college education at
significant savings. Parents or other relatives may open CollegeSure CD accounts with a
minimum deposit of $250. Earnings are tax-deferred, and individuals may receive up to a
$3,000 annual tax deduction ($6,000 for married couples filing separately). Proceeds -
which are guaranteed to meet future tuition, fees, room and board - may be used at any
eligible institution of higher education in the United States. Information is available by
calling the Montana Family Education Savings Program toll free at (800) 888-2723 or at its
Web site: http://montana.collegesavings.com.
- Hope "Scholarship" tax credit and Lifetime Learning tax credit. These credits
allow qualified taxpayers to deduct tuition from the amount of federal income taxes they
owe. The Hope Scholarship, which isn't really a scholarship but a tax credit, lets
taxpayers deduct up to $1,500 per student in his or her first and second academic years.
The Lifetime Learning credit is worth 20 percent of the first $5,000 paid in tuition and
fees, up to $1,000 per tax return. For more information on these credits, contact the IRS
or an accountant.
- IRAs for education. Money in Individual Retirement Accounts can now be withdrawn
penalty-free to pay for higher education. New education IRAs also have been established
with annual contribution limits of $500. For more information on using IRAs for education,
contact a financial adviser.
- Student-loan tax deduction. Starting with the 1998 tax form, taxpayers will be able to
deduct interest paid on student loans. For more information on this deduction, consult the
1040 tax instruction booklet, the IRS or an accountant.
- Increased Pell Grants. More students are now qualifying - and they're receiving more
money - thanks to the U.S. Congress, which has expanded eligibility and increased awards.
The maximum Pell Grant award for the 1999-2000 school year will be $3,125, up from $3,000
in the 1998-99 school year. For more information, contact a campus financial aid office.
These new and improved ways to pay for a college education are just a few of the
options available to students and their families. Other avenues to explore include savings
bonds, which require a minimal investment but increase greatly in value upon maturity;
federal student loans, which often have lower interest rates than private loans;
work-study; and scholarships from schools, foundations and businesses. More information on
these options is available from a campus financial aid office or by calling the U.S.
Department of Education at (800) 433-3243 to request a free financial aid booklet.
-- Patia Stephens
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