Education Planning Basics
- ABCs of financial aid
Understanding financial aid is important because it can determine whether your child attends the college of his or her choice--or attends college at all. Financial aid can consist of loans, grants, scholarships, or work-study. Some financial aid is based on need, and some is based on merit. Merit aid comes from colleges and other institutions in the form of scholarships and grants. The federal government is the main provider of need-based aid, and a child's need is determined by the government's aid application, the FAFSA. Colleges use a form called the PROFILE to identify the most financially needy students.
- Comparison of Types of Educational Assistance
- Education tax credits
You just paid your child's semester bill for college--do you qualify for either the American Opportunity credit (Hope credit) or the Lifetime Learning credit, two education tax credits? Qualifying will depend on your modified adjusted gross income and the amount of qualified tuition and related expenses you've paid over a given year. The American Opportunity credit covers the first four years of undergraduate education, and is generally worth a maximum of $2,500 a year for each qualifying student. The Lifetime Learning credit can be used for continuing education courses, and generally has a $2,000 limit per tax return.
- Income-Based Repayment (IBR) for Federal Student Loans
The federal government's income-based repayment program (IBR) for student loans allows qualified borrowers to tie their monthly federal student loan payments to their discretionary income. A new version of the IBR program called "Pay As You Earn" took effect on December 21, 2012 (it was originally scheduled to be phased in during 2014, but the Obama administration took regulatory measures to make it available sooner). The potential for IBR to change the landscape for college borrowers is enormous. According to the U.S. Department of Education, as of last October, about two million borrowers had applied for IBR.