Tax Credits

College students probably aren't very familiar with filing their taxes, but tax credits can go a long way in helping to pay for tuition. Currently, there are two different types of tax credit programs offered by the federal government: the Hope tax credit and Lifetime Learning tax credit program.

For the Hope tax credit, the maximum yearly credit is $1,500. For many schools, this will be a fraction of the overall cost of tuition, but this still is a significant savings. When combined with other programs---financial aid, grants, scholarships, work study, or another---it can severely cut down tuition costs.

For tax credits, you will normally get less if you make more, as the credit is not seen as much as a financial necessity. If the parents make more than $100,000 for a joint return, the credit is significantly lower. Keep in mind that the credit can only be given to the same person who is both paying tuition and filing for taxes--i.e. the student must be a dependent. If the student is not a dependent, he or she must apply for the tax credit individually.

The Lifetime Learning tax credit is similar to the Hope credit. It can only be used for tuition and fees and the credit is $1,000 maximum. However, if the tuition is $10,000 then the tax credit can be as much as $2,000---higher than the Hope credit. Like the Hope tax credit, the amount of the credit depends on family income. It is important to determine how the credit is affected if the parents submit joint or separate tax returns. This is especially important if the tuition payment come from both parents.

Keep in mind that you cannot combine the Hope and Lifetime Learning tax credit. If you make over $102,000 jointly, you are not even eligible to apply. If this is the case, there are a number of other opportunities for paying off tuition and other expenses, such as fellowships and grants. Some restrictions may apply---as you cannot combine the Hope and the Lifetime Learning credit, you may also not be able to combine certain types of grants.

Other Tax Credits

In addition, it is possible to apply for other types of credits: the Additional Child tax credit, Earned Income tax credit, Retirement Savings Contribution credit, and others. While these are not directly related to college tuition, they can be factored into an overall budget and help with college expenses. Finally, it is possible to get a deduction for up to $4,000 for college-related fees.

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