The Cost of Higher Education - Adult Education
09/17/2015: By Jim Eutsler - Financial Planning and P&G Retirement Planning Specialist
Deciding to pursue advanced or continued education typically involves a lot of thought on 2 aspects: time and money.
Time, like money, has an opportunity cost – by that I mean there is always something else you could be doing with your time. If you choose to pursue further education, you are placing a high value on what that additional training will eventually get you compared to what you’re otherwise missing out on now.
The same goes for the money you are spending on that education. The time will be given up no matter what; however, that does not necessarily have to be the case for the money. With that, let’s look at some resources available to reduce or offset the out-of-pocket expenses related to adult education. Keep in mind that while most people associate the below with a high schooler going into college, there are no age requirements to receive federal student aid.
Money for schooling that does not have to be paid back. They come in 3 forms:
- Discretionary grants – these are awarded using a competitive process. Examples include the Fulbright-Hays Grants or Mary Switzer Research Grants.
- Student grants – general grants that help students attend college. These are typically need based and the biggest one is the Pell Grant (maximum award is $5,775). Completion of the Free Application for Federal Student Aid (FAFSA) determines eligibility.
- Formula grants – these use formulas determined by Congress and they have no application process. Examples include ‘Adult Education and Literacy’ grants and ‘Tech-Prep Education’ grants.
Money, like a grant, for schooling that does not have to be paid back. Unlike a grant, these are generally merit-based. Find out more here: Student Aid (Scholarships)
Many employers pay for some, if not all, of continuing education. P&G, for example, pays a large percentage (e.g. 60-80%) of a full-time employee’s tuition with a time commitment contingency.
Tax Preferential Treatment
There are two tax credits available to help you offset the cost of higher education. Worth noting: a credit is more valuable than a ‘deduction’ because a credit directly reduces the tax liability itself whereas a deduction simply reduces the amount of income subject to tax. These credits are mutually exclusive:
- American Opportunity Tax Credit– a credit for qualified education expenses paid for during the first four years of higher education, up to $2,500 per student.
- Lifetime Learning Credit – a credit for qualified education expenses paid during an individual’s lifetime, up to $2,000 credit per tax return. This also includes courses to acquire or improve job skills.
You can find out more tax benefits for higher education by reading IRS Publication 970
which is 96 pages and is as riveting as it sounds. Shortcut it by going directly to Appendix B which highlights the tax benefits for the year.
While there are deductions for tuition, fees and student loan interest, adults will want to take note of deductions around qualifying work-related education and business deductions for work-related education. The key to being able to deduct these expenses if you paid out of pocket for them is that the course must maintain or improve skills needed in your present work and not qualify you for a new trade or business.
They get picky on this one… For example, an accountant who gets a law degree to better serve his clients with estate planning cannot deduct his out of pocket costs for that law degree because such a degree qualifies him for a new trade or business. Find out more here: Work Related Tax Benefits.
While I wrote this with adults in mind, nearly all of the above applies if you are a parent considering ways to potentially lower the out of pocket expense for your child getting ready to enter college.
Take note – the Department of Education has over $150 billion in federal aid available for those who qualify. Applying is free so consider that time well spent.
If you want to walk through this together, feel free to reach out to me at [email protected].
Next up will be What is This IRA You Talk Of?.
Content in this article is not intended to be financial advice. Instead, we think of it as educational, and financial education is important to us.
Cincinnati Wealth Management and Retirement Planning Firm. Hengehold Capital Management.