<p>Hello everyone! I've been learning so much about FA and the college loan/payment process through the great posts and knowledge on this forum...I appreciate that!! My D is starting her Freshman year in college next month. After her scholarships and grants I have the full amount covered for the Fall 2014 semsester (out of pocket). As for the spring semester I might come up a little short. The spring semester payment is due in December, but after listening to a presentation during orientation day by the Business Office, they said that payments can be made in early January. I'd prefer to make the payment in January so I can clam the tax credit for the 2015 tax year. </p>
<p>My questions are: </p>
<ol>
<li><p>Can she get the full $5,500 unsubsidized loan (or a portion of it) for the Spring 2015 semester even though I plan to make my portion of the payment in January? </p></li>
<li><p>At what point does she apply for the unsusidized loan? Of course we've already completed the FAFSA for the 2014-2015 school year.</p></li>
<li><p>When the school sent us her FA package it included the unsubsidized loan. I declined it at the time since I knew I had the full amount for Fall 2014 covered. Can I assume I can still get that loan, or a portion of it, for just the Spring 2015 semester?</p></li>
</ol>
<p>Thanks in advance for any and all advice!</p>
<p>You may also be able to take the $2500 tax credit for 2014. Consider having your daughter include $4000 of her scholarship and grant money as taxable on her 2014 1040.</p>
<p>@Madison85 I don’t believe she’ll file a tax return for 2014.</p>
<p>^If your daughter plans to declare $4000 as taxable scholarships, she should file the tax returns.</p>
<p>@4kidsdad I guess I need to read up more on the tax rules. So even though she will not hold a job in 2014 she can still file 2014 taxes and declare $4K in taxable scholarships that the school gave her? Of course, the school gave her a lot more than that. Would that be done on a 1040? What benefit would this provide to her?</p>
<p>@scsiguru: It is likely worth it for her to FILE a tax return in order to show $4,000 of the scholarship as taxable (if she has no other income, then she will owe no federal income tax) and then you will most likely get the $2500 education tax credit (FREE MONEY) on your tax return which you can put toward her education costs. Reading the College Confidential website and applying what you learn can gain $2500 for you!</p>
<p>See more information in IRS Publication 970 and/or consult your tax advisor.</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>@Madison85 I knew about the $2.5K education tax credit, but didin’t know about the part where she has to show $4K in taxable scholarships. I’ll be reading more of the pub970. Thanks.</p>
<p>^^ as Madison85 said, the benefit is not to her, but to you. You only get the AOTC if you (or child) has paid OOP for a Qualified Education Expense that has not otherwise received a tax benefit (like a 529 plan). If you will be paying more than $4000 OOP for QEE’s (tuition books, etc) then no problem, she doesn’t have to file a tax return for just the scholarships she used for QEE. If, however, scholarships cover all the QEEs, or at least doesn’t leave $4000 owing, she can claim that $4000 of the scholarship was for room and board, making that portion taxable, and then you can take the AOTC. Since you say she doesn’t have other taxable income in 2014, the entire $4000 will be within her standard exemption ($6100 for 2013) and she’ll owe no tax but you’ll get a credit.</p>
<p>@twoinanddone Thanks for the clarification. Yes, I’ll be paying quite a bit more than $4K out of pocket for her QEE’s, so she will not need to file a tax return for me to claim the $2.5K AOTC.</p>
<p>@scsiguru: In order to claim the full AOTC, $4,000 of tuition must be paid with non-tax-advantaged dollars. This means that these dollars do not come from an Education IRA/Coverdell Education Savings account, a 529 account, or scholarships. </p>
<p>But, in the case of scholarship money, if your child chooses to report $4,000 of scholarship money as taxable on her tax return, then these are no longer tax-advantaged dollars and you can now claim the $2,500 AOTC on your return (the parents’ return).</p>
<p>Then, the following year when you and your child fill out the FAFSA, there will be a question for her asking how much, if any, of her income was from taxable scholarships. So then you’ll enter ‘$4,000’; this is done so that her federal financial aid is not negatively affected from reporting some of the scholarships in a previous year as taxable. </p>
<p>@scsiguru: A few more thoughts: you say that you have the full amount of Fall college costs covered by scholarships and grants - so if the scholarships and grants exceed the COA, you could consider asking one of the entities giving her some scholarship money to hold it/some back until the second semester to avoid having to report even more on the child’s tax return.</p>
<p>Also, did you know that the portion of scholarships and grants that exceed the Qualified Education Expenses are taxable to your daughter (again, refer to Publication 970 and/or a tax advisor)? So if Fall semester tuition and books are $5,000 and her room and board are $4,500; the $4,500 is taxable to her regardless; then if you choose to make $4,000 of the tuition taxable (in order to claim the AOTC on your return); she’ll have $8,500 of taxable income for 2014. As a point of reference, for 2013, a child or dependent’s income over $6100 is taxed. Also, the scholarship income is considered unearned income so then Form 8615 (kiddie tax) comes into play for your child.</p>
<p>Still, reporting $4,000 of the scholarship as taxable to gain the $2,500 tax credit likely outweighs the child’s tax liability.</p>
<p>I was confused by this sentence and didn’t pay attention to the ‘out of pocket’ part:</p>
<p>“After her scholarships and grants I have the full amount covered for the Fall 2014 semsester (out of pocket).”</p>
<p>So it sounds like the OP IS paying QEEs out of pocket in 2014?</p>
<p>@Madison85 Thank you for the great information! She is going to an OOS private college and my out of pocket responsiblity for the fall semester is $13.6K. The spring semester is $14.1K. I’m hoping to cover everything without the need for the unsubsidized loans. I have money in a 529 as well as savings bonds which I don’t plan to use until possibly the sophomore year. All of the money scholarships and grants came from the college.</p>
<p>You still may have to do a tax shuffle. If you are paying $13.6k, it seems like a good portion of that is for room and board (one of my kids is $13,400! eek!; the other is ~$8500) If so, you might still need to ‘move’ some to taxable.</p>
<p>Say Tuition and r&b is $40,000 (leave out the books and other expenses that can be QEE) and you are receiving $26.4 in scholarships and grants. If you don’t claim $4000 of that as taxable, you won’t be able to take the AOTC. If tuition is $25k, you’d have to claim the $1.4 as income also because it exceeds the QEE You have to know how much aid you are getting, and the QEE versus taxable amounts (r&b).</p>
<p>For one of my kids, she’s going to have taxable scholarship anyway, but if I want to take the AOTC, she’s probably going to owe on her taxes because the amount will exceed $6100 (good news when you thing about it because that means she’s getting a lot in scholarships).</p>
<p>@scsiguru: You mentioned you didn’t think your daughter would be filing a return for 2014; but she may need to if some of the room and board is covered by grants/scholarships (taxable unearned income); per above example, and also see examples in Publication 970.</p>
<p>Can she get the full $5500 in spring? Yes. She is eligible to borrow that all in the spring. She will contact her aid office, who will give her the form she needs to request the loan that was declined. She will need to tell them that she wants it all in spring, and they will tell her the timing for the request to be processed.</p>
<p>You don’t have to worry about timing of loans with regard to the AOTC. Aid for AOTC purposes does not include loans - only “free” money.</p>
<p>…meaning that QEE paid with loans will ‘work’ for the AOTC.</p>
<p>Exactly. Paying with loans is just like paying with your own money … but it is your own money (just more expensive).</p>