Reducing the pain of financing a college education.

• Author: Schnepper, Jeff A.

In a recent roper survey, 48% of parents with offspring under age 18 indicated that their number-one financial goal was to "make sure my children can go to college." College is expensive. A four-year education at a good private university costs upwards of $100,000 today. Few families have that kind of money (especially if they have more than one child), and the fees and tuition are increasing annually.

If the costs rise a mere four percent per year, a child born today, or, more likely, his or her parents, will face a $200,000 bill in 18 years. Nevertheless, the investment has high potential returns. The U.S. Department of Labor has reported that, for 1995, the annual average salary of a college graduate was approximately $13,000 more than that of someone with only a high school education. Over time, that difference could add up to hundreds of thousands of dollars.

Besides academic scholarships, going into permanent debt, or raising the next athletic superstar, what can the average family do to finance this pending monetary tsunami? One answer is to find someone else to help fund that college education. There are some tax-savvy ways to do so, thanks to the tax changes of 1997.

Tax credits

Within the 117,972 words of the 1997 Taxpayer Relief Act there can be found some relief designed to make paying for college a little less oppressive. Two new tax credits were created specifically for education:

The HOPE Scholarship offers a tax credit of up to $1,500 a year for the first two years that your child is in college. The government will give you a dollar-for-dollar credit for the first $1,000 of tuition and related expenses and 50 cents on the dollar on the next $1,000. This credit applies to expenses paid for academic periods beginning after 1997.

The Lifetime Learning Credit applies to expenses for academic periods paid after June 30, 1998, and can be used for your child's third and fourth year in school. It provides a 20% credit to be applied to the first $5,000 of qualified expenses (including educational expenses to acquire or improve job skills) through 2002 and then climbs to 20% of the first $10,000 thereafter. The credit not only applies to your offspring's college expenses, but is available for your own education to acquire or improve skills if you are making job or career changes.

These credits phase out at between modified adjusted income levels of $80,000 and $100,000 for joint filers and from $40,000 to $50,000 for others. These...