By Alyssa M. Reed, CPA, The Tax Insider
College is expensive. For students currently enrolled at universities or parents saving for their children to attend, this is known. In fact, the average total price for a four-year degree from a public in-state university is almost $88,000. The price tag for a nonresident to attend an out-of-state university averages $153,300, and it costs almost $200,000 for a private university degree.
Considering the median home price in the United States is $200,000, individuals are spending almost as much on their education as their home. Yet, students enroll in universities every day, investing heavily in their future. Why? For many students, a college degree provides better job opportunities, greater earning potential, and a more secure career. These advantages are worth the cost. The government also has reasons to encourage college enrollment. College graduates are often better off economically than those without degrees.
The government uses the tax law to encourage certain behaviors that it wishes to promote. Education incentives are an intriguing area because it is a rare scenario where Americans are offered tax incentives to do something — in this case, pursue higher education — that people were already inclined to do.
Considering the high cost of education, the government offers various tax credits and deductions to offset the cost. This two-part article looks at the opportunities available at three stages of a fictional student's life. The first part examines the planning issues when the student is a young child whose parents are saving for college, and as a young adult paying for college. The last part, in next week's issue, addresses the taxability of scholarships and the issues that arise when the student is a recent graduate paying off student loans.