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Throughout the college admissions process, you’ll encounter several important checkpoints. Selecting schools, applying for admission, and receiving college acceptances are all critical. But, your decision often comes down to how you will pay for it. Financial aid can help by providing scholarships, grants, work-study employment opportunities, and student loans to those who qualify. Below are essential financial aid facts every student should know, including an introduction to the FAFSA.

  1. Most financial aid requires filling out the Free Application for Federal Student Aid (FAFSA)
    The FAFSA is the application for federal grants, work-study, and federal loans. Colleges and most state grant programs use the FAFSA to award their financial aid. Check your school’s financial aid website to see if you need to submit additional forms. When filling out your FAFSA, note that many state grant applications require you to list an in-state school first for consideration. You can find additional resources on filing the FAFSA on our website, with articles like Need Help Paying for College? We Have Tips for Filing the FAFSA.
  2. Know and meet financial aid application deadlines
    Most schools have deadlines for submitting the FAFSA. Complete yours in time to meet the earliest deadline for the schools you’re considering, or for your state grant program if that deadline is first. If you miss deadlines, you may receive fewer grants, need more student loans, or may be offered less financial aid overall. You can find deadline information on college financial aid websites or visit the FAFSA site at studentaid.gov. Tip: Using the Internal Revenue Service Data Retrieval Tool (IRS DRT), which automatically transfers tax information into the FAFSA form, can save you time searching for tax records and eliminate errors.
  3. Amend your information if your financial situation changes.
    The amount and type of financial aid you qualify for is based on the income information submitted on your FAFSA. If your family’s economic situation changes in such a way that your financial need increases substantially, your financial aid office needs to know. You should file an amended FAFSA and/or talk with someone in your financial aid office about the changes to see how they impact grants, scholarships, work-study, and student loans you may receive.
  4. Don’t rule out a college because you think it’s too expensive
    The intent of financial aid is to provide access and college choice for students with financial need. If you are accepted at a school and filed your FAFSA, along with other required forms timely, you will receive a financial aid award notification before you are asked to make a decision about whether you will attend. To be in the best position, apply for admission at a few schools and send your FAFSA to all.
  5. Remember to compare financial aid packages.
    If you’ve followed the steps above, you should receive financial aid packages from a few schools, if you are eligible. You can compare the amount of scholarships, grants, work-study, and loans offered at each school, and calculate your net costs at each. When determining your school costs, consider all expenses – tuition, fees, room, board, books, supplies, transportation, and personal expenses. The makeup of your financial aid package differs among schools, and the net cost may differ as well. If you need additional aid, there may be other federal and private student loans to help cover your portion of costs.

Before you accept your financial aid and make a final decision about the school you will attend, be sure to read all the information accompanying your financial aid offer. You should fully understand each program in your package, your obligations, and the renewal process for each program. If you have questions, your college financial aid office is an excellent resource.

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It’s that time of year again. That is to say, it’s time to gather all your paperwork, W-2’s, receipts, statements, and related documents and work on your tax forms. Consequently, here are a few key education tax benefits to help you get the most possible deductions. You can find more information in IRS Publication 970 Tax Benefits for Education. This includes all the information you need, including sample forms and worksheets.

Education Tax Benefits

Certain tax benefits are available if you are saving for or have paid for educations costs. In general, most benefits apply to higher education. They may be allowed for you as a student, or a member of your immediate family who was a student. Usually, you can’t use the same qualifying education expense for more than one tax benefit. Certain benefits may be ruled out based on your income. Here are the education-related items from Publication 970:

  • Scholarships, Fellowship Grants, Grants, and Tuition Reductions
  • American Opportunity Credit
  • Lifetime Learning Credit
  • Student Loan Interest Deduction
  • Student Loan Cancellations and Repayment Assistance
  • Tuition and Fees Deduction
  • Coverdell Education Savings Account (ESA)
  • Qualified Tuition Program
  • Education Exceptions to Additional Tax on Early IRA Distributions
  • Education Savings Bond Program
  • Employer-Provided Educational Assistance

Below are three general education tax benefits. Be sure to review IRS Publication 970 for all possible benefits. Seek help from a licensed tax professional to take full advantage of education tax benefits.

Student Loan Interest Deduction

Is your modified adjusted gross income less than $80,000 (or $160,000 if filing a joint return)? Did you also pay interest on a qualified student loan for higher education expenses? If so, you may be able to reduce the amount of your income subject to tax by up to $2,500. If the amount of interest you paid on your student loans in 2018 was $600 or more, you should receive a Form 1098-E (Student Loan Interest Statement) from your lender or loan servicer. Form 1098-E will provide you with the amount of interest you paid. The Student Loan Interest Deduction Worksheet in the Form 1040 or Form 1040A instructions can assist in calculating your deductions.

Student Loan Cancellations and Repayment Assistance

Loan Cancellation

If a loan you must repay is forgiven or cancelled, you must include the amount forgiven in your gross income for tax purposes. There is an exception to this rule in instances of a loan made by a qualified lender. This exception assists you in attending an eligible educational institution. Lenders make these provisions based on particular work capabilities.

Repayment Assistance

If you receive student loan payments from any of these sources, the payments are not considered taxable:

  • Scholarships, Fellowship Grants, Grants, and Tuition Reductions
  • The National Health Service Corps (NHSC) Loan Repayment Program
  • A state education loan repayment program eligible for funds under the Public Health Service Act
  • Any other state loan repayment or loan forgiveness program intended to provide for the increased availability of health services in underserved or health professional shortage areas (as determined by such state).

You may not deduct interest paid on student loans if those payments came through these programs.

Tuition and Fees Deduction

Did you pay qualified education expenses during the year for yourself, your spouse, or your dependents? If so, you may be able to reduce the amount of your income subject to tax by up to $4,000. As with as the student loan interest deduction, you claim the tuition and fees deduction as an adjustment to your income. Therefore, you are not required to itemize in order to claim this benefit. In order to claim the deduction, your modified adjusted gross income can’t be greater than $80,000 (or $160,000 for joint returns). Subsequently, the educational institution may provide you with Form 1098-T. This form provides payments received or billed for qualified education expenses. To claim the tuition and fees deduction, complete Form 8917 and submit it with your Form 1040 or Form 1040A.

We hope you found the above information helpful. We encourage you to be aware of all the possible deductions related to education tax benefits. There are a number of education related tax benefits available. If you think you might qualify, consult the IRS website or Publication 970 for more detailed information and guidance.

While preparing for college, one of the most important considerations is how to pay for it. All students should complete the Free Application for Federal Student Aid (FAFSA) because it is used to determine students’ potential eligibility for various financial aid programs, as well as various state and institutional-based aid programs. All of this is based on a variety of factors, including your Expected Family Contribution.

Expected Family Contribution

When completing the FAFSA, you’ll need to provide certain information. You need to detail your (and possibly your parents’) income, family size, and number of family members attending college. The FAFSA uses all of the information you provide to determine a figure known as the Expected Family Contribution (EFC). Don’t be alarmed if your calculated EFC is high. Colleges use your EFC college financial aid offices to determine the amount of financial aid you are eligible to receive.

Cost of Attendance

Each college sets a figure known as the Cost of Attendance. Direct costs such as tuition, fees, books, as well as room and board make up the Cost of Attendance. It also includes other indirect costs such as transportation and other personal expenses. Colleges and universities have varying Costs of Attendance, but your EFC remains the same, regardless of where you go.

Determining Eligibility

Financial aid offices use the formula below to establish your financial need. This determines if you qualify for grants and other financial aid programs.

Cost of Attendance – Expected Family Contribution = Financial Need

The lower your EFC, the greater the likelihood that you’ll qualify for need-based financial aid.

Remember that your EFC stays the same no matter what school you attend. The name Expected Family Contribution might sound like you have to directly contribute or pay that amount. But, it’s just a part of the formula that determines your financial aid eligibility. There are other financial aid sources that can be used to fully fund your college education such as unsubsidized Direct LoansPLUS loans, private loans, and other aid programs not based on financial need. It’s best to exhaust all sources of grants and scholarships before borrowing for college. You can use a free search at Peterson’s to find available scholarship opportunities. You can also visit the U.S. Department of Education’s Federal Student Aid website to learn more about the EFC, FAFSA, and other financial aid programs.

Considering paying off your student loan debt with your tax return or just a lump sum of money? There can be more to larger payments than meets the eye. Follow these steps to learn how to make the most of your lump sum payment.

1. Make a List

Knowing which loans you want to pay off first will help you get the most bang for your buck. Make a list of all of your federal and private student loans, the balances, and the interest rates. Then, based on your goals, weigh your options. You could put your lump sum payment toward your highest interest rate loans, or pay off your low-balance loans first. Paying off your highest interest rate loans reduces the amount of interest you pay. It also saves you money over the life of the loan. Paying off your lowest balance loans first could save you money on your monthly payment. Paying off your lower-balance loans allows you to put money saved from a lower payment toward your other student loans. This can help you to pay them off faster.

2. Talk to Your Loan Servicer

Check to make sure your loan servicer knows how you want your payments applied to your student loans. If you pay above the minimum payment and don’t specify how you want payments applied, your loan servicer decides for you.

Below is a sample letter put together by the Consumer Financial Protection Bureau (CFPB) that you can send to your loan servicer to ensure payments above your minimum monthly payment amount are being applied to the correct loan(s). For some loan servicers, this can be done online.

I am writing to provide you instructions on how to apply excess payments greater than the minimum amount due. Please apply payments as follows:

  1. After applying the minimum amount due for each loan, apply any additional amount to the loan accruing the highest interest rate.
  2. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
  3. If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.

It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, use the instructions outlined above.

Retain these instructions. Please apply these instructions to all future overpayments. Please confirm these payments will be processed as specified. Otherwise, please provide an explanation as to why you are unable to follow these instructions.

3. Things to Keep In Mind

There are a few other things to be mindful of once you’ve decided where to apply your lump sum payment.

  1. Follow up with your loan servicer. Call or check your accounts online to make sure your payment was applied as specified.
  2. Making a payment larger than your minimum payment amount can sometimes advance your due date. This means another payment on your student loans won’t be due until your minimum payments catch up to your lump sum payment. While it can be nice to skip a few months of student loan payments, your loans still accrue interest and won’t save you any money. Even if your due date advances, continue to make your monthly payments to save yourself money in the long run.
  3. You can also save money on your student loans by refinancing. Refinancing allows you to combine both your federal and private student loans into a new loan with a new repayment term and interest rate, which can often save money over the life of the loan, or help lower your monthly payment.

Paying off your student loans is a great accomplishment. As you begin to make decisions around your personal finances, make sure to keep these tips in mind so that you can make the best choices for your financial future.