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Going back to school as an adult

You've decided that college or graduate school is your ticket to a better career or the path to advancement in your current job. Or maybe you just want to take a few classes to upgrade your skills. Either way, returning to school as an adult has its challenges. You've probably heard the expression "time is money." Well, you'll need plenty of both.

Where will you find the money?

Returning to school often involves financial sacrifices, but there are ways to lessen the bite. Personal savings, financial aid, private loans, and employer-funded tuition may be available to you, and education tax credits and deductions can help you out at tax time.

The first thing to do is calculate how much your education will cost. Make sure to add in collateral expenses that won't show up on the college bill (e.g., day-care and commuting expenses). And if you're giving up your job, factor in the time you'll be without a paycheck, and the time it might take you to find a job in your new profession. Then, if you can't afford to pay your education expenses out-of-pocket, go look for the money.

Ask your employer

Unless you're leaving your job to attend school, ask your employer about tuition reimbursement. There may be strings attached, though (e.g., you may need to certify that you're not retraining for a new career, or promise to work at the company for a number of years after you graduate). The good news is that up to $5,250 of employer-provided educational assistance is tax free, even if it's for classes that are unrelated to your current position. For more information, see IRS Publication 508, Tax Benefits for Work-Related Education.

Learn about financial aid--your first academic experience

The maze of student financial aid programs can seem like another obstacle in your quest to return to school, but the process is understandable if you do some research and ask questions. Start at your school's financial aid office.

To qualify for federal aid, you'll need to submit the federal government's application, the FAFSA, as soon as possible after January 1st in the year you plan to start school. The FAFSA calculates your expected family contribution (EFC), and lets you know if you're eligible for financial aid. You'll be classified as an independent student, which means that if you're married, both your income and assets and your spouse's will count in this calculation.

There are different types of federal financial aid:

  • Loans--The two main federal student loans are the Stafford Loan and the Perkins Loan. Both are made to undergraduate and graduate students attending college at least half-time, and both have annual and cumulative borrowing limits. The drawback of student loans is that you'll need to repay them at a later date. And graduate and professional students are eligible to borrow the full cost of their education (minus any financial aid received) under the federal PLUS Loan program.
  • Grants--The two main federal grants are the Pell Grant and the Supplemental Educational Opportunity Grant (SEOG). They're available only to undergraduate students, and they don't need to be repaid. Two other federal grant programs are also available to full-time undergraduate students--the Academic Competitiveness Grant for first- and second-year students and the National Science and Mathematics Access to Retain Talent (SMART) Grant for third- and fourth- year students. Both grant programs are scheduled to sunset at the end of academic year 2010/2011.
  • Work-study--The federal work-study program subsidizes jobs for both undergraduate and graduate students.
  • Military aid--The federal government offers educational benefits for veterans and their dependents. Contact your local veteran's office or your school's financial aid office.

If you don't qualify for federal financial aid (and you should always apply, even if you don't think you'll qualify), you may still be eligible for institutional aid from your school--specifically grants, scholarships, and work-study programs. Inquire at the financial aid office and do your best to meet all application deadlines, because institutional aid is typically administered on a first-come, first-served basis. Finally, don't forget to search for outside scholarships. Thousands of private organizations offer them, and some are based solely on achievement. An easy way to search for scholarships is on the Internet, but don't pay anyone to do it for you--searching is free.

Keep in mind that the federal government and colleges base your aid eligibility on last year's tax records. If you plan to reduce your hours or stop working to attend school, your income will obviously be less when school starts. Make sure to bring this to the attention of your school's financial aid director, who's authorized to take special circumstances into account, and where appropriate, rebalance aid awards.

Take a trip to the bank

If you don't qualify for financial aid or you need to borrow more than the federal student loan limits, private loans from commercial lenders are an option. However, the rates on private loans are typically one or two percentage points higher than on federal student loans.

Use personal assets (or cash under the mattress)

Do you have savings that could cover a portion of your expenses? Or maybe you could sell some assets. Just remember that tapping your retirement funds should be a last resort--money you withdraw will reduce your nest egg and miss out on the potential for tax-deferred growth. And, depending on the type of retirement account you tap, you may also face tax consequences and penalties for withdrawing money before age 59½.

Investigate education tax credits and deductions

In addition to the tax break noted above for employer-provided educational assistance, there are several other tax incentives that can help ease the financial burden of returning to school:

  • American Opportunity credit (Hope credit)--This credit is generally worth up to $2,500 in 2011 for tuition and related expenses for the first four years of undergraduate education, provided you're enrolled at least half-time. To take the full credit, your modified adjusted gross income (MAGI) must be below $80,000 (single) or $160,000 (married filing jointly). A partial credit is available to single filers with a MAGI between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000.
  • Lifetime Learning credit--This credit is generally worth up to $2,000 in 2011 to cover the tuition and fees for higher education courses taken throughout your lifetime, whether to acquire or improve job skills. To take the full credit, your MAGI must be below $51,000 (single) or $102,000 (married filing jointly). A partial credit is available to single filers with a MAGI between $51,000 and $61,000 and joint filers with a MAGI between $102,000 and $122,000. Unfortunately, the American Opportunity credit and Lifetime Learning credit can't be claimed in the same year--it's one or the other.
  • Student loan interest deduction--If you graduate with student loans, you can deduct up to $2,500 of the interest you pay on student loans each year. To take the full deduction in 2011, your modified adjusted gross income (MAGI) must be below $60,000 (single) or $120,000 (married filing jointly). A partial deduction is available to single filers with a MAGI between $60,000 and $75,000 and joint filers with a MAGI between $120,000 and $150,000.

For assistance or more information, consult a tax professional or IRS Publication 970, Tax Benefits for Education.

Finally, how will you balance school, career, and life?

You've found the money--now you need to find the time. Balancing school demands with the rest of your adult responsibilities will be challenging, though not impossible. Here are some tips:

  • Map out your life goals (again) to confirm that returning to school will help you achieve them.
  • Establish a family/friend support network before classes start, and make sure your family supports your decision to return to school.
  • If you have older children, explain your new routine and how they can help out. If you have younger children, arrange day care if necessary--check to see if your school offers it.
  • Look for programs designed for adult students (e.g., support groups, tutoring programs, specially trained academic advisors and counselors).
  • Consider going to school part-time, taking night classes, or signing up for online classes. Each option can save you time and money.
  • Always keep in mind the financial and personal rewards that will come after your education is complete.