Paying for education: Other ways
About this video
Beyond grants, scholarships and loans, this video introduces other ways to pay for college: tuition payment plans, education tax credits like the American Opportunity Tax Credit and Lifetime Learning Credit, 529 savings plans, and military or veteran programs. It also explains how a tax credit differs from a tax deduction.
You'll be able to
- name several ways to pay for college besides grants, scholarships and loans.
- explain the difference between a tax credit and a tax deduction.
- describe what a 529 plan is used for.
Key words
- Tuition payment plan
- An arrangement that lets you pay college costs in installments instead of all at once.
- Tax credit
- An amount subtracted directly from the tax you owe, dollar for dollar.
- Tax deduction
- An amount subtracted from your taxable income, which lowers your tax by only part of that amount.
- American Opportunity Tax Credit (AOTC)
- A US tax credit that can give qualifying families several thousand dollars a year toward college.
- 529 plan
- A savings plan where families put money away for education ahead of time and invest it tax free.
Transcript
- In other videos, we go into a lot of depth on some of the major ways that you might get help paying for college, getting financial aid. We talk about things like grants and scholarships, which you don't have to pay back. We also talk about loans, student loans, both federal and private loans, which oftentimes are a major way to pay for college.
But you have to be careful, because it's usually fairly large amounts of money, and you will have to pay it back. And what I'm gonna do in this video is talk about a few other ways of being able to support your college education. First of all, you could have the institution itself.
Maybe other parties have tuition payment plans where they say, okay, you don't have to pay it all at once, maybe you, or your family, could pay it in installments. And also the tax code is constantly coming up with new ways to support you, and or your family, to support your education.
You have things like the American Opportunity Tax Credit, AOTC. I'm reading this to make sure I'm getting it right, but right now, if you qualify and not every family is going to qualify, or if you make a certain amount, then a lot of these types of credits start to go away.
But if you're a family of need, it can provide several thousand dollars per year towards your college education. There's also the Lifetime Learning Credit, which per tax return, we could be talking about a few thousand dollars, which also can go towards an education.
The difference between a credit and a deduction, we go into a lot of detail in other videos. Credit, literally, if you owe 5,000 in taxes, and you get a thousand dollars in credit, you now owe $4,000 in taxes. A deduction is different, it deducts your taxable income.
So that gets a little bit more complicated. It's not a one for one. It's, you know, if you were making $50,000 a year, and you get a $10,000 deduction, it doesn't mean you get 10,000 or your tax goes down by 10,000, it means that your taxable income is now $40,000.
So depending on your tax rate, et cetera, it's going to be, you're going to probably get 20, 30% or something of that $10,000 back. So it's not the full 10,000. But there's also tax deductions here, things like 529 plans, and depending on your state, there are different 529 plans, where families can start putting money away for college ahead of time, and then invest it tax free, and then be able to use that for college and other education-related expenses.
But there's many, many different things here. There's military programs, the GI bills, veteran benefits, and other programs for folks in specific industries that could also help you pay for college.
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