Tax credits & savings plans

Ways to reduce the cost of college

Both federal tax credits and savings plans are available to help families manage the cost of college — particularly if they don't qualify for aid.

Federal tax credits

If you or your parents pay for your tuition and fees, you may be able to recover some of the expenses through federal tax benefits. The Hope Scholarship Tax Credit is available for the first two years of college, and the Lifetime Learning Tax Credit is available for college enrollment at any level. To take advantage of these benefits, you must owe taxes and be in a qualifying income bracket.

Talk to a tax expert about your eligibility for the credits, and visit the Internal Revenue Service website and search for "tax incentives for higher education expenses."

For more information about tax credits, visit a tax professional or see the IRS's Tax Benefits for Education.

Tax-advantaged savings plans

There are numerous tax-advantaged 529 college savings plans around the country with a variety of terms and fees charged. California one such plan: the Golden State ScholarShare Trust. Under a 529 plan such as ScholarShare, an investor may establish an account on behalf of a designated beneficiary (e.g., child, grandchild, niece, nephew, friend — even himself or herself). The money contributed to the account is placed in a trust, which is invested in portfolios designed to meet the needs of beneficiaries of different ages so that the investment is ready to be withdrawn to pay for the beneficiary's college campuses.

Currently, earnings and qualified withdrawals from ScholarShare 529 savings plans are tax free at both the state and federal level for California residents. Also, 529 plans may be used by individuals at any income level.