<p>DS1 did not get on campus housing for Fall (lottery). He has a merit scholarship that pays for a good portion of tuition. He takes the Direct loans each year, so the Direct loan for next year will cover the balance left after scholarship for tuition. That will be the only billable cost by the college. So as the parents, we will be left paying the rent/utilities for off campus housing.
1) Will that prevent us from being able to take the AOC tax credit?
2) I'd rather pay our money to the college for tax purposes, and easier proof for sibling's CSS profile. Also would rather not get involved with having to pay a landlord each month but not really comfortable just dumping all that money in son's account for him to pay the landlord. Is there any way we can pay the college for tuition before the loan is disbursed so that the proceeds of the loan are refunded to my son so he can then pay rent with it? Or should we just not accept the loan until after we've paid the tuition? Can you initially decline the direct loan and then go back in and accept after the semester starts?</p>
<p>You can pay the school for the tuition, IMO by just paying the school that amount and calling it a tuition payment. Your son won’t get the direct loan until he completes the MPN and counseling forms for it, and he can just put that off. He has all school year to do this. Figure out how much you have to pay (is it $4K) to get the AOC and just pay it to the school because, no, room and board, etc are not allowable expenses. </p>
<p>Room and board is not a qualified expense for the AOC anyway, so I don’t see how it makes any difference. It sounds like your AOC qualified expenses will be the portion of tuition that the merit scholarship does not cover, required fees, and books and other required materials.</p>
<p>Yes I know that room & board aren’t qualified expenses and obviously books won’t come to 4k. I’m trying to figure out how we can pay the school for the tuition balance when really the direct loan will cover it. He has been getting some work study each year in his package. Can we accept the work study (so he doesn’t lose out on that limited pot) and decline the loans but then go back in a month or two later and change to accepting the direct loans?</p>
<p>You can time those direct loans for whenever you want. That money won’t be dispensed until your son fills out the forms and submits the MPN. He can do it at the end of the year, even the next year. My son took his Direct loan entitlement at the very end of the year as a disbursement directly to him so that he didn’t pay interest on it from earlier. The bursar’s office gave him the money since he was all paid up and he pocketed it to use for a trip that summer. </p>
<p>Are you asking if using the direct loan instead of paying the school out of pocket for the tuition balance will prevent you from taking the AOC for that tuition balance? If so, the answer is no. Paying the tuition balance with the loan money is the same as if you wrote a check to the school, for purposes of the AOC.</p>
<p>Middkidd- even though the loans are my son’s? We can use the loans to claim the AOC on our tax return?</p>
<p>Though I do not think you are going to have any trouble with this, to keep a clean paper trail, pay the school, then get the loan. and when you write your checks to the school, make sure it clearly says it’s for the tuition. It just makes it a lot easier to track and prove. </p>
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<p>Yes, even though the loans are your son’s - as long as you claim him as an exemption on your tax return. See IRS Pub 970, pg. 16. “Expenses paid by dependent”:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>