No one doubts the importance of education—for ourselves, our children, and our grandchildren—but obtaining it can be pricey. According to the Scholarship Workshop, the average cost of one year in a public university (in-state) for 2016–2017 is $33,330 and for a private college is $71,830, and the cost of higher education is increasing at about 7% annually (compared with an overall inflation rate of about 1.5% for 2016). Fortunately, the tax law provides many incentives to help you save for education and to pay for it on a tax-advantaged basis.
This chapter explains the tax deductions, credits, and other breaks you can claim with respect to education costs. For more information, see IRS Publication 970, Tax Benefits for Education.
If you want to apply for federal financial aid for yourself or your child, you must complete the Free Application for Federal Student Aid (FAFSA). The information on the application is based on your federal income tax return. The U.S. Department of Education made certain changes designed to ease the application process.
The deadline for submission has been moved from January 1 back to October 1, starting on October 1, 2016. In addition, the information on the application can be based on the prior-prior year's information (two years prior), instead of the prior year's information. This allows tax information from the prior-prior year to be readily available.