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

Students Pay

Some students pay for their own college education while working at the same as going to college. Others work ahead of time to save enough money leading up to the four years of college to earn a degree. Either way, students that pay for their own tuition tend to pay better attention to their academics because they have a vested interest in doing well—their hard earned money.

Not only do students that pay their own tuition and college fees tend to work harder on academic achievement, but they are also more likely to take it the distance to earn a degree.

Unfortunately, working to pay for a college education can also inhibit some students. For some students, it takes a toll on their time because they have to work full-time, go to school full-time and find time to do homework study and take care of their personal lives. The students who pay their own way also may be less likely to participate in college life activities because they are short on time.

Parents Foot the Bill

When parents pay for college, it can go one of two ways. Students may appreciate how hard their parents have worked to cover this expense, which is especially true in minority families, such as Hispanic and African-American families. This gives the child incentive to do well in school so as not to waste their parents’ money.

College experts say that no matter the income level of the parents, the parents and the child should have a payment agreement that correlates with academic success. For example, the parent may agree to pay for the child’s entire college education as long as they maintain a GPA of 3.0 or higher.

Other parents may pay upfront, but require the child to make a certain grade in each class. For example, the parent will pay 100 percent of the class if the child gets an A in the class. For a B, the parent may only pay 90 percent of the course, so the student owes their parents 10 percent of the cost of that class.

Again, this gives the child an incentive to do well in the class even though Mom and Dad are footing the bill.

Scholarships

Students that are attending college on a scholarship have a built-in incentive to do well. All scholarships have built-in requirements that students must meet to continue to receive their scholarship money. Typically, the requirement is to maintain a specific GPA and to stay out of academic or legal trouble while in college. As long as the students do this, they typically keep receiving their scholarship money. Kids going to college on scholarships tend to do what they have to do to keep their scholarship money coming in.

This is especially true of kids that would not be able to afford to go to college without the scholarship. Again, this tends to be low-income families that do not have other ways to pay for their child off to earn a college degree.

Financial Aid

College students that receive financial aid are also on an income-needs basis. This means that without the financial aid, it may prevent the student from going to college at all, or would require them to start at a local community college rather than head off to a four-year college or university.

Academic success and financial aid may propel students to do well because students know they have to pay the money pack after they graduate. If they don’t do well, then it is a waste of their own money because even though the students didn’t have to come up with the money upfront, it is their money that they have to pay back on the backend—after graduation.

Some financial aid is based on performance as well. This means that if the student receives financial aid one semester but fails, then they may not receive financial aid the following semester.

Other students mistake financial aid as “free money.” They do not fully understand that they have to pay this money back so that it is worth their effort to do good academically so that they do not waste the money.

Does the students’ academic success depend on who pays for their college? According to some studies there is a correlation between college success and the payment source, especially when the student has a vested interest—either paying for their own college, holding on to a scholarship or parents that will only pay when certain criteria are met.

On October 3, 2011, the iPad will be a whopping 18 months old. Hard to believe, since it seems like the cute little device has been around forever, mainly because it quickly wormed its way into our collective consciousness faster than the pet rock.

When it first came out Apple claimed that the iPad would revolutionize higher education in that students would be able to keep all their textbooks, notebooks, lecture notes, research, and just about anything they normally haul around in their backpacks all on one small electronic devie. Plus, instructors could easily distribute assignments, notes, syllabi, tests, videos, and e-books all via the iPad, making it nearly impossible for any student to say he or she didn’t get the required reading materials.

Eager to hop onboard the e-train many colleges and universities made iPads required technology. Some of these schools gave the iPads out for free (which you KNOW weren’t really free, the schools just raised tuition to cover the cost) or they required students to pay an additional “technology fee”. For example, Seton Hall, Long Island University, Stanford Medical School, Illinois Institute of Technology, George Fox University, Oklahoma Christian University, Oklahoma State University, Duke University, University of Maryland, Northwest Kansas Technical College, and Chicago State University all supplied their students with iPads, which had been deemed as part of the schools’ curriculum, registration, and grading processes. The cost increase to students ranged anywhere from $250 to $700.

So after one year can we tell if implementing iPads into higher education has been worth the expense? It depends on the rubric by which you’re grading. By the end of the 2010-2011 school year 90 percent of the college students surveyed said they preferred using the iPads (over not having them at all), however, average overall student grades stayed about the same. Regardless, having the iPads did cut down on the use of textbooks and paper, made scheduling for both students and teachers more straightforward, made it easier for students to get the classes they wanted (by streamlining the registration process), and encouraged students to work together in groups, thus cutting down on instructor and teacher assistant office hours.

But the positive feedback for the iPad as a college campus staple did not stop there.

Pros

As you can imagine, the physical aspects of the iPad were the biggest pros for students. Because iPads are smaller and have a longer battery life than laptops students could literally take them everywhere they went and didn’t have to look for power outlets. Some even boasted less back problems from not having to carry around heavy, book-laden backpacks.

From an academic standpoint professors liked the iPads because they could distribute articles to students before or during class without having to make copies or arrange for copies at the school library or bookstore. Plus, they could confirm if their student received the documents or not.

Cons

That’s not to say the year didn’t come without iPad problems. The first and foremost being the keyless keyboard made it hard for students to take notes in class. (Although, on the plus side, the iPad keyboard is quiet compared to the click, click, click of students typing on laptops during class.) The touch of the flat screen iPad keyboard was hard for many to get used to given there’s no point of reference on the keyboard for finger memory. Therefore, without looking it’s hard to tell what you’re actually typing.

And secondly, students initially complained that there is no easy way to highlight text or make notes in the margin of iPad documents. Many students ended up converting the documents to PDF files and then annotating them with iAnnotate, or simply printing the documents out on paper and using a good, old-fashioned yellow highlighter.

However, now with Amazon’s new e-book rental option for college textbooks (which just came out July 2011) users can highlight and annotate their e-textbooks using the Kindle (downloadable from Amazon for the iPad). Or if you download e-books that are readable by iBooks (a product which comes with the iPad), then you can use the iBooks text annotation functions (which are also easy to use) to mark-up text. Regardless, the iPad still has a ways to go to make document annotation as straightforward as marking up a book with a pen.

So even though student grades did not increase overall given the presence of the iPad on-campus, it did make college life easier. And apparently that IS worth the expense, because most students and faculty claim the iPad pros far outweighed the cons, making college-required iPads a trend that will probably increase in the coming years. (Now if Apple could just figure out a way to make the iPad do laundry and cook healthy meals then it truly would revolutionize a college student’s life!)