1. Tax Breaks
The tax code is very friendly for parents paying for college and technical school. The Hope Scholarship Tax Credit lets you get a $2,500 tax deduction for paying $4,000 for your child’s qualified educational expenses, which are basically tuition and fees, but not room, board, or books. You get a $2,000 credit for the first $2,000 you spend on qualified expenses. The first $1,000 is a refundable credit, which means you can get this as a tax refund, even if you owe nothing in taxes. The second $2,000 you spend, you get a 25% tax deduction, so it is $500. You can change your W4 so you can decrease your tax withholding and make monthly payments to your child’s college or technical school. This tax credit does begin to phase out at $180,000 married filing jointly or $90,000 for single filers. Less than 10% of U.S. households have incomes of $180,000 or more.
Besides tax breaks, another source of parent funds for college is the money you save on food, if your child goes away to school. The July 2015 statistics from the USDA estimate a moderate monthly food plan at home for an 18 year old female is $250.50 and $309.50 for an 18 year old male. Over a nine month school year, that would be $2,254.50 for an eighteen year old female and $2,785.50 for an eighteen year old male. You could use the money you save on food to make monthly payments to your child’s college or technical school.
3. Transportation and Miscellaneous Expenses
The chances are that you are saving on other expenses when your child goes to college that you could put toward their education. Our younger daughter started college this fall. We had a third vehicle while we had kids in high school because we didn’t want to drive them all the time. We sold the car to our older daughter who graduated from college, so we save on the cost of a third vehicle. We used to give our daughter an allowance for clothes and personal expenses. We stopped this once she started college, making her responsible for almost all of her expenses beyond room, board, tuition, and fees. We also were paying for music lessons for her, as well as saving money for her senior open house, which we no longer need to do.
If your child goes away to school, you could rent their room on Airbnb. You would need to check your local laws to see if it is OK. You would also need to check with your insurance agent to see if you need additional coverage. Making more money will increase your family contribution as calculated by FAFSA.
If it is your last child leaving home, you could downsize to a smaller home, hopefully freeing up some equity after selling and moving costs, and reducing property tax, homeowner’s insurance, and utilities. If you have a mortgage, make sure you don’t add years of payment by downsizing and you take out a shorter term mortgage or accelerate payments to pay off the new mortgage early.
How to decrease college and technical school costs.