Is your money at risk?
How college students will survive the fiscal cliff
Published: Friday, January 11, 2013
Updated: Friday, January 11, 2013 00:01
Congress kicked off New Year’s Day by not plummeting off the “fiscal cliff.” Headlines around the world, such as the Wall Street Journal, USA Today and CNN.com, declared the fiscal cliff avoided, for now. Universities, students and financial aid offices will see changes in the future as a result of these decisions.
The fiscal cliff deal included a five-year extension of the American Opportunity Tax Credit, according to the American Council on Education’s website. This benefits 9 million college students and their parents by allowing them to claim up to $2,500 in college expenses on their income tax returns.
“I spent about $300 on books this semester,” said Dusty Rhode, an Indiana State University junior business major from Acton, Ma. “I will definitely claim those.”
Some of the information available to students on the American Council on Education’s website claimed that federal student loans will not be impacted and Pell Grants are actually increasing.
However, according to Mark Kantrowitz, founder of the financial aid advice website Finaid.org, Pell Grants could be cut by as much as $400 and work-study jobs may be harder to come by. The deal also includes spending cuts that will go into effect on March 1, which may significantly impact higher education, according to the American Council on Education’.
Kantrowitz also noted some positive outcomes—the Tuition and Fees Deduction was extended for another year, allowing students to claim up to $4,000 in tuition expenses. Taxpayers can now also claim interest on student loans after five years, due to the Student Loan Interest Deduction provision.
“I think that tax breaks for college students aren’t a terrible thing,” Rhode said. “The emphasis we put on a college education grows with every generation and the job market is getting extremely competitive. College is already very expensive and graduating with a four-year degree and thousands in debt can be crippling.”
Congress may have avoided the fiscal cliff now, but still more important questions about higher education wait for the March 1 deadline.
Whether dangling off a fiscal cliff or simply trying to balance a checkbook, Rhode knows financial planning is an important skill for college students, especially when facing an uncertain future.
“Right now I’m putting five percent of every paycheck into a 401K, which is matched by my employer up to four percent,” Rhode said.
“I also have a few Roth IRAs set up. I have taken out a few student loans, but they’re unsubsidized, so I don’t have to worry about interest on those just yet.”