We are only a few weeks into 2013 and it is time for college students to start applying for financial aid for the next college year. This year, however, many college students may face an unpleasant surprise or two when they start dealing with educational expenses. Due to the deal passed by Congress to avoid the fiscal cliff, there are some changes that will cost college students money. In addition, much of the funding for federal student aid is still up for debate, so college students need to keep a watch on developments.
The deal passed on January 1, Congress extended education tax benefits including the American Opportunity Tax Credit through 2017. This credit allows families to receive as much as a $2,500 credit for college expenses such as textbooks and tuition. In addition, the Tuition and Fees Deduction that expired in 2011 can now be claimed again. This deduction allows students, parents, and spouses to take as much as a $4,000 deduction in tax returns for education expenses paid.
A great deal of federal educational funding for this year is still being debated, and Congress has until March 1 to pass laws to prevent financial aid cuts to programs like work-study. If no action is taken, there will be many programs automatically cut in sequestration. These programs may include federal work-study, and federal SEOG grants. These programs were not part of the fiscal cliff deal and could be reduced if action is not taken in time. As such, students may receive financial aid awards that include financial aid that may get cut before it is paid out.
Congress also holds the fate interest rates on subsidized student loans. The rates were frozen last year, when interest was due to jump from 3.4% to 6.8%. If Congress doesn’t take steps to stop the rising interest now, the rates will double automatically this July 1 for all new loans. Although this won’t immediately affect college students, it can dramatically increase the payback amount they owe upon graduation.
If you are a college student, it is important to stay on top of financial aid changes. Check with your school’s financial aid office for details and make sure to follow the news for important updates. This will ensure that you are prepared to meet any new challenges in paying for your education.