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You should be pleased to learn that there are at least some tax benefits to paying for your child's college. In fact, there are two tax credits available that would help offset the cost of your child’s tuition, fees, books, supplies, and equipment. They do this by reducing the amount of your income tax. They are:
• The American Opportunity Credit allows you to claim up to $2,500 per student per year for the first four years of school as your student works toward a degree or similar credential.
• The Lifetime Learning Credit allows you to claim up to $2,000 per student per year for any college or career school tuition and fees, as well as for books, supplies, and equipment that were required for the course and had to be purchased from the school.
In addition, if you take out student loans for your child, your spouse or yourself, you can take a tax deduction for the interest that you paid on it. This applies to all loans (not just federal student loans) that are used to pay for higher education expenses. The maximum deduction is capped at $2500 a year. And while that $2500 probably won't pay for a year of your child's college, it should certainly help.
Have a heart-to-heart talk
If your child has been admitted to several different schools, it's important that you have a heart-to-heart talk about the schools and what they cost. We know that it's hard to say "no" to your child because you want to give him or her everything you can – but a very expensive college might be outside the "everything you can" category While it used to be that graduating from a very prestigious university automatically resulted in a very lucrative job, this is no longer as true as it was just several years ago. For that matter, you might suggest that your child do what many young people are doing these days and that is attend a less expensive college for his or her first two years and then transfer to that more prestigious school. Or depending on your child's career goals, it might make good sense for him or her to attend an inexpensive school while saving enough money to go to grad school at a very prestigious college.