Tax-Based Student Aid Overview

When you are thinking about ways to pay for college, don't overlook tax-based student aid programs. Although you don't receive the money from these programs until you file your income taxes the following calendar year, the money you get back can help fund expenses the next academic year. Families receive $14.8 billion of student aid in the form of education tax benefits on an annual basis. Surprisingly, 27% of eligible students don't take advantage of tax-deferred benefits.

Tax-based student aid for college comes in the following forms:

  • Credits: A credit reduces your tax liability (the amount of tax that you pay to the government) dollar for dollar.
  • Deductions: A deduction reduces your amount of taxable income.
  • Savings Incentive Programs: A savings incentive program, such as a 529 Plan or Coverdell ESA, allows you or your family to save and invest money tax-free for certain education expenses.

Some examples of tax-based student aid programs you may be eligible for include:

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