Payment Plans & Tax Breaks

In addition to financial aid programs administered by the University, students and families can manage college costs by taking advantage of federal tax benefits and campus payment plans. These are valuable tools, especially for families that may not qualify for need- or merit-based financial aid.

Federal Tax Benefits

Two federal tax credits may benefit you or your parents, if the grants and scholarships you receive do not fully cover your fees. Both tax credits are tied to the tuition and fees paid for college.

The Hope Scholarship Credit (up to $1,600) is available for the first two years of at least half-time enrollment in postsecondary education. The Lifetime Learning Credit (up to $2,000) is available for postsecondary enrollment at any level. Eligibility for both is limited to joint filers who earn less than $103,000 and single filers who earn less than $51,000.

In addition, taxpayers may withdraw funds from traditional Individual Retirement Accounts (IRAs), without penalty, for their own higher education expenses or those of their spouse, child, or grandchild.

Find out more about tax benefits from the IRS website.
See Publication 970 [PDF].

Payment Plans

Deferred Payment Plans

Many campuses offer deferred payment plans to help make payment of fees, tuition and on-campus housing costs more manageable. These plans spread payment over a period of months, rather than requiring the entire amount prior to the beginning of the term.

Deferred payment plans require a simple application and may charge an application or participation fee for each term. The plans do not charge interest, but you may be assessed a late fee if your payments are overdue.

If you would like more information about deferred payment plans, contact the Financial Aid Office at the campus you wish to attend, or the one nearest you. The Financial Aid Office telephone numbers are listed in Catalogs and Contact Information.

Saving Plans and Prepaid Tuition

While neither the University of California nor the state of California offers prepaid tuition plans, California does have one of the most competitive IRS 529 Savings plans: The Golden State ScholarShare Trust (ScholarShare).

Under a 529 plan such as ScholarShare, an investor may establish an account on behalf of a designated beneficiary (e.g., their child, grandchild, niece, nephew, friend — even their self). The money contributed to the account is placed in a trust, which will invest in portfolios designed to meet the needs of differently aged beneficiaries, and different kinds of investors.

Currently, earnings and qualified withdrawals from 529 savings plans are tax free at both the state and federal level. Moreover, unlike Coverdell or Roth IRAs, 529 plans may be used by individuals at any income level.

In September 2002, maximum contribution limits for the California plan ranged from $124,799 to $174,648, based on the beneficiary's age and the estimated costs for the highest-cost California higher education institution for the year that the beneficiary would normally enroll. Other state's plans have different investment limits; most state plans allow investors from any other state to establish an account.

Qualified withdrawals from a 529 account can be made to any eligible educational institution in the country.

For more information about ScholarShare, visit www.scholarshare.com.

To learn more about 529 Savings Plans, visit www.savingforcollege.com.

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