Student Finance – the Big Picture

Student Finance – the Big Picture

EASFAA 2013Stephen G Brown, Fordham Law School

Who Cares !

How is college paid?Student Borrowing 18%Parent Borrowing 9%Grants and Scholarships 29%

Parent Income and Savings 28%Student Income and Savings 12%Relatives and Friends 4%

Student Loan DebtIn the news, how much is true?Increased as federal limits have

increased◦Especially at Grad/Prof level

Families and choicesEasy to borrow federal loans

◦Harder to be creative

Parents52% pay from current income!11% from 529/530 plans9% from taxable savings5% withdraw retirement savings

Parent Borrowing8 % PLUS3% Private Education Loan4% credit cards2% HELOC2% retirement account loan3% other loan

Payment PlansNo interestFeeCan cover charges not covered

by aid10 months-8 months-4 monthsEarnings from “float”

PLUS and GradPLUSFederal

◦Guarantee, ◦Consolidate, grad in IBR, PAYE,

FPSLFP, ◦death/disability◦Published credit criteria◦Parent as borrower or endorser◦Grad Student as Borrower◦7.9%, but 4 % fees

Private LoansImagine walking into a bank…Fixed v variable interestFeesCredit worthinessCredit scoreParents on behalf of studentsLack of federal benefitsSchool certified or not

Employment

Employer provided Educational AssistanceUp to $5,250Tuition and feesBooks and suppliesAny employer may choose to

offer◦But fewer doing it!

Employer tuition benefitsNot only for schoolsBenefit – often awarded through HRUndergrad no tax implications for education

employeesGrad no tax if perform teaching or researchTaxed above $5,250May require certain gradesPayment may be after completion of the

courseWaiting period? Commitment after payment?May require courses related to job

Student work for SchoolFWSResident Assistant

◦ Room◦ Perhaps meal plan and some tuition

Teaching or Research Assistant◦ Tuition◦ Other employee benefits?

Really depends on schoolAt REAL job

◦ Part time school, but free or reduced tuition!

Parent work for school

The Tuition Exchange tm

Consortium of IHEs600 schoolsWorked mainly through HR/Benefits officeOffers tuition benefits at many institutions

◦Ties to school policiesSchools require applicationBalance of tradeAdmissions requirements

Veterans BenefitsMontgomery Bill

◦ Chapter 30◦ Contributed while enlisted◦ Up to 36 months

Chapter 35◦ Dependents of dead or disabled vets

Post 911 GI Bill◦ Chapter 33◦ Tuition and fees – $17,500 maximum unless

grandfathered◦ Housing stipend◦ Books stipend◦ May be transferable to beneficiaries

Yellow RibbonIn conjunction with Post 911 GI BillSchools “opt- in”For schools that are more

expensive than highest public tuition – often private

VA will match schools contributions up to half of costs in excess of Post 911 GI Bill

UGMA/UTMAUniform Gift to Minors ActUniform Trust for MinorsInvolves planningIrrevocableReverts to minor at age of

majorityAsset? For FAFSA reporting –

owned by student

Home EquityCan you (your parents) afford to lose

your home?Long term debtSecured by houseUp to $100,000 over the amount

needed to purchase home is deductible“Second Mortgage”Home Equity Line of credit

Tax Policy

Is my Scholarship Taxable?117c qualified Scholarship

◦Degree candidate◦Qualified educational expenses

Tuition, fees, books, supplies, equipment◦Not compensation for teaching,

research, work

Qualified Tuition ReductionReceived from eligible education

institutionUsed at eligible education

institution◦Need not be the same

Employee or dependantUndergraduate not taxedGraduate – requires teaching or

research

American Opportunity CreditTAX CREDIT up to $2,500MAGI Limits

◦$90,000 single, $180,000 married/jointUp to 40% refundable ($1,000)First 4 yearsOnly 4 yearsTuition, fees and booksNo LLC or T & F deductionLoans used for Qualified expenses countNot Coverdell exemption

American Opportunity Credit …100% of first $2,000 in expenses25% of next $2,000Reduction for MAGI $80-90k

($160-180k)Form 8863Extended through December 31,

2017

Lifetime Learning CreditTAX CREDIT of up to $2,000Cannot be combined With American Opportunity

CreditMAGI limits

◦ $61,000 (s) $122,000 Married JointNon Refundable, Unlimited yearsNo matriculation requiredTuition and fees and books paid to institution$20% of first $10,000Reduction at $51 – 61k ($102-122k)Form 8863Through December 31, 2017

Student Loan Interest DeductionQualified Student LoanReduce Income by up to $2,500Enrolled at least half time when borrowedMAGI $75,000 ($150,000)Not from a related personTuition, fees, housing, books,

transportation (COA)Amortize fees ( but not reported on 1098-

E)Voluntary interest is OK

Student Loan interest…Phaseouts $60-75k ($120-150k)

Directly deductible◦Line 33 1040◦Line 18 1040 A◦Line 9 1040 EZ

Tuition and Fees DeductionNot if AOC or LLCNot if married filing separatelyMAGI $80,000 ($160,000)$4,000 income deductionTuition and related expenses paid

to institutionNot required matriculation

Tuition and Fees…Income from $65k - $80k (130k-

160k)◦Max deduction $2,000

Income below $65k ($130k)◦Max deduction $4,000

Form 8917

Tax Free Savings Accounts

Coverdell Education Savings AccountSection 530 of IRCMany investment optionsBeneficiary must be under 18 when set up$2,000 annual limitAccrues tax free Tax free withdrawals for educational

expensesMust liquidate at age 30Contribution limits based on contributor’s

MAGI

Coverdell ESAMAGI less than $110,000 ($220,000)

◦MAGI = AGI for most taxpayersCan establish account for beneficiary

under 18 (or special needs)Distributions tax free for ADJUSTED

Qualified Educational Expenses$2,000 annual contribution limitMust be distributed by time beneficiary is

30

Coverdell ESATuition and FeesBooks, supplies, equipmentSpecial needsRoom and board (if registered at

least half time)Transfer to other family member

530

529 PlansSection 529 of the Internal Revenue Code

◦ “Qualified Tuition Programs”Pre-paid tuition or college savingsAllows anyone to set up a plan for beneficiarySponsored by states in cooperation with

investment firmsLarge selection of investmentsAccrues tax free and withdrawals federal tax free

for ◦ Tuition and fees ◦ Room and board◦ Books, computer

QTP (529) PlansNo income restrictions on contributionsWithdrawals for Qualified Educational Expenses

--Tax freeTuition and FeesBooks, supplies, equipmentSpecial needsRoom and board (if registered at least half

time)

Transfer to other family member QTP

Early IRA Distribution penaltyNot subject to 10% penalty

◦May be subject to ordinary income taxation

Tuition and FeesBooks, supplies, equipmentSpecial needsRoom and board (if registered at

least half time)

Education Savings Bond InterestPhaseouts MAGI $71,100 and

$86,100◦$106,650 to $136,650 married jointly

Series EE issued after 1989 or series I◦Owner older than 24 at bond issue

date◦Only for DEPENDENT for whom you

claim exemption on tax returnTuition and feesForm 8515

Insurance, TDAs and other

Personal deduction for work

Business Deductionfor Work Related ExpensesMust be workingMust itemize or Must file Schedule C or FMust be Qualifying Work Related or

maintain or improve skills◦Required by employer or law to keep job◦Serve bona fide business purpose◦Not needed to meet minimum requirements

for current job◦Does not qualify for a new trade or business

Qualifying Work RelatedMust be Qualifying Work Related

or maintain or improve skills◦Required by employer or law to keep

job◦Serve bona fide business purpose◦Not needed to meet minimum

requirements for current job◦Does not qualify for a new trade or

business

Maintain or Improve skillsRefresherCurrent developmentsAcademic Tuition and FeesBooks and SuppliesTransportation--Work to school and

school to homeTravel—Is this session deductible?

Have I exhausted you yet?

QuestionsCommentsSnide Remarks

Stephen G. BrownFordham University School of Law33 West 60th StreetNew York, NY 10023212 636-7178sbrown@law.fordham.edu