The ethnicity of a person and the likelihood they will attend college has always gone hand-in-hand. Caucasians, for example, college attendance numbers are much higher than Hispanics or African-Americans. Primarily, this relates to the income level of the households that these children come from, but it is not the only factor. With the economic downturn, the number of college attendees are down and there is even more of a significant decrease in the numbers for minorities.

Hispanics take the Hardest Hit

Of all the minority groups, it is the group of Hispanics that seem to be struggling the most to make it through college these days. While the numbers are up on the number of Hispanics that are attending college, the number of Hispanics that earn their degree and graduate from college is decreasing. Since this is such a growing issue, President Barrack Obama, along with college educators, has set a goal to increase the number of Hispanic college graduates by 2020.

According to the College Board, Hispanics between the age of 25 and 34 have earned at least an associate’s degree or higher, as of 2009. While this is a nationwide figure, states such as Florida that have one of the largest Hispanic populations in the country, has a 29 percent amount of Hispanic students between the ages of 25 and 34 that hold at least an associate’s degree or higher, as of 2009.

African-Americans Struggle Too

The College Board estimates that only 29 percent of African-Americans nationwide earn an associate’s degree or higher, as well. While there are not state specifics on African-American graduates, it seems as if the two primary minorities in the country are earning college degrees at the same rate.

Perspective

Twenty-nine percent may seem like a decent college graduation rate. After all, it is almost one-third of the population of the ethnic group. When you compare the 29 percent figure to the 40 percent of Caucasians that graduate from college with at least an associate’s degree or higher, you can easily identify the disparity in the numbers.

At Michigan State University, approximately 19 percent of Hispanics and African-Americans comprise the student population. The Michigan Civil Rights Initiative, primarily known as Proposition 2, was an initiative the state of Michigan put into place to help attract and move more minority students to graduation in its state. Proposition 2 was introduced in 2006 and by 2011, the difference is starting to become noticeable.

Unfortunately, the affects of the proposition have been negative instead of positive. At Michigan State University, the African-American student enrollment fell in 2007 by 3.3 percent. While the proposition has not increased the enrollment numbers and graduation figures for Hispanics, the number of Hispanic students at Michigan State University has remained the same.

Higher education numbers show an even worse scenario. At the University of Michigan, the enrollment numbers for African-Americans have fallen 50 percent, according to the Office of the Registrar. The number of Hispanics at the university enrolled for their law degree slipped from 65 students to 47 students.

For minorities, the financial struggle to find the money they need to go to college has always existed. Now, not only are minority groups, such as Hispanics and African-Americans struggling to find the money to start and finish college, but so are Caucasians. Unemployment rates are high. Access to loans and other forms of funding are low. The combination of all of these factors is affecting all ethnic groups looking to obtain a college education.

For minority groups that have always struggled though, the struggle just keeps getting worse. Even with special programs in place to try to help minorities get into and finish college, most programs are falling short and not making the grade.

The Federal government offers two tax credits to eligible Americans to help them carry the financial burden. These credits can help you offset the costs for your education or a dependent’s education, whether a child or a spouse.

What are tax credits?

Tax credits differ from deductions that are subtracted from your total income. Credits are dollar for dollar reductions in your taxes. If you secure a credit for $1,000, your tax will be reduced by the same amount.

The two education tax credits available for 2011 are the American Opportunity Credit and the Lifetime Learning Credit

Let’s take a look at each in more detail:

American Opportunity Credit

The American Opportunity Credit, originally the Hope Credit, is offered to taxpayers who pay for undergraduate education expenses. This credit was introduced for 2009 taxpayers and it will expire in 2012 unless Congress extends it.

Features

The American Opportunity Credit is refundable which means you can receive a cash refund if your credit exceeds your taxes. You can expect a refund up to 40% of the credit amount if the refundable portion of your credit is greater than your tax amount.

The credit you can recieve has a maximum value of $2,500 for every $4,000 spent on qualifying educational expenses. Your expenses must reach $4,000 to qualify for the full credit of $2,500.

If you spend less than $4,000 in qualifying expenses, you are still eligible for a partial credit. Partial credits will cover 100% of up to $2,000 of qualifying expenses, in addition to 25% of the next $2,000.

For example, if you incurred $3,000 of qualifying expenses, you can claim a credit of $2,250.

The first $2,000 is covered at up to 100% = $2000 credit
$3,000 – $2,000 = $1,000 left which will be credited at 25%
$1,000 x 25% (0.25) x 100 = $250 credit
$2,000 + $250 – $2,250 total credit

Remember that a portion of the credit is refundable up to 40% so if you only owe $2,000 in tax and you earn a credit of $2,250, you will receive $250 cash back. If the $250 exceeded 40% of the total credit, you would only receive 40%.

Eligibility

• The credit is available to undergraduate students who are attending a school recognized by the U.S. Department of Education. Graduate school and single course education expenses are not covered.
• Income limits for full credit eligibility: Your modified adjusted gross income (MAGI) must not exceed $80,000 as single, head of household, and $160,000 if married, filing jointly. Partial credits are available to taxpayers who make between $80,000 and $90,000, filing as single, head of household and those who earn between $160,000 and $180,000 filing jointly as married.
• You must be enrolled in at least a half-time schedule.
• You must not have any drug convictions on record.
• You cannot be someone else’s dependent. Parents of dependent children can claim the credit. Students who are taxpayers cannot be a dependent of anyone else in order to qualify for the American Opportunity Credit.
• If you are claiming a deduction for education expenses you are not eligible to claim the credit. You must choose one or the other. If you are eligible for both, determine which would reduce your taxes more. In most cases, the tax credit would make more sense since it automatically reduces your tax burden dollar for dollar.
• You can only use this credit for a maximum of 4 years, which includes any years the Hope Credit was claimed as well.

The Lifetime Learning Credit

The Lifetime Learning Credit is a nonrefundable credit offered by the Federal government. With a non-refundable credit, if the credit supersedes your tax owed, this extra money will not be refunded to you.

Features

The Lifetime Learning Credit provides a maximum credit of $2,000, which is calculated as 20% of up to $10,000 in expenses. In contrast with the American Opportunity Credit, the income limits are lower at $60,000 if filing single and $120,000 if filing jointly.

Graduate students as well as undergraduates are eligible for this credit and there is no limit to the amount of years you can claim the credit. Students taking one or a few courses for job related study are also eligible for the credit.

What You Should Know

You cannot claim both credits for the same student in one year. Choose which one supplies you with the greatest financial benefit. If you are a parent of two students, you are permitted to claim one credit for one student and another credit for the other.

Qualified expenses include tuition, books, supplies and equipment as well as any enrollment fees. It does not include medical expenses, transportation, dorm and living expenses or any other personal or family costs. Note: the qualified expenses differ for each credit.

To find out more information about these credits and other benefits available for students, see IRS Publication 970: Tax Benefits for Education

Even those students that are still attending college in the face of a housing bust and with less money to work with, are having to make a change to their original educational plans.

When housing values were up, parents were accessing the equity they had built in their home to access the cash they needed to pay for a college education for their children. Accessing the equity in the home was a fast and easy way for parents to obtain the cash they needed to pay for the college education, using a low interest rate equity line or loan, and a tax-deductible way to send their child off to earn a college degree.

Housing Prices Rise, Enrollment Increases

According to the study, from the 1990s to 2003, the prices of houses steadily increased on an annual basis. The increasing values of homes provided parents with access to the equity they had built in the home to use as the means to pay the tuition, room and board, and book fees to send their children off to college. This access to cash from the increased value of the home alleviated the need for taking out student loans, depleting cash savings or having to cash out retirement accounts—and taking tax penalties—for funding college educations.

The proof is in the numbers.

• Between 2001 and 2005, when home prices skyrocketed, college attendance rose by 8 percent
• For every $10,000 more that the home value increased, there was a 13.8 percent higher chance that the child would attend college
• According to a University of Michigan study, 64 percent of the children of homeowners were likely to go to college, while only 33 percent of renters were likely to go to college

Lower Housing Prices, Higher Student Loan Default Rates

The study also reveals that as housing prices fell, not only did it decrease the attendance numbers at colleges and universities around the country, but those who attended college were forced to turn to alternative payment methods, such as taking out student loans.

According to the U.S. Department of Education, 4.5 percent of borrowers were in default on their student loans in 2003. In 2009, the number of borrowers in default on their student loans has increased to 8.8 percent.

Alternative Educational Choices

The study reveals that Americans are $7 trillion less wealthy since the housing boom went into a housing bust, which is a 16 percent loss in household wealth. This equates to a reduction in housing values of approximately 32 percent since 2006, as far as the S&P/Case-Shiller Home Price Indices reports. According to Lovenheim, this may not deter students from heading off to college, but it may throw a wrench in their original plans. Those students who intended on going straight to a four-year university program may have to start at a two-year program at a community college instead.

In a previous study conducted by Lovenheim, for every $10,000 in value that the home fell, 2.3 percent of students were less likely to attend a major university and 1.6 percent were less likely to attend a community college.

Those most affected by the decrease in housing values and the change in college attendance are low- to middle-income families. The average household income is $75,000, and even of these households, minority households, such as African-American and Hispanic households are the most affected.