How the New Tax Law Changes Your College Costs

Photo by michaeljung /

College students and their families are among the taxpayers directly affected by the recent overhaul of the federal income tax code.

The Tax Cuts and Jobs Act is not all bad news for folks trying to save for or pay for higher education, however. It preserved more tax breaks than it nixed, and it left multiple ways to save for college largely untouched.

No more tuition and fees deduction

Previously, qualifying higher-education expenses that you paid for yourself or your spouse or dependent were tax-deductible, according to the Internal Revenue Service. This deduction could reduce your taxable income by as much as $4,000.

This deduction was not extended by the overhaul, however, the H&R Block Tax Institute reports. So, Congress effectively allowed it to expire after 2016.

Preserved tax breaks

The tax deduction for interest on qualifying student loans remains in place, according to H&R Block. This deduction enables you to write off up to $2,500 in interest payments per year.

The tax code overhaul also did not change two tax credits for higher-education expenses:

  • The American Opportunity Tax Credit (AOTC), worth up to $2,500 per year, can help pay for expenses from the first four years of a student’s higher education.
  • The Lifetime Learning Credit (LLC), worth up to $2,000 per year, “can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills,” the IRS says.

Ways to save for college

The overhaul loosened the federal rules for 529 plans, allowing funds in those tax-sheltered investment accounts for college costs to be used for K-12 education expenses. This change takes effect starting with the 2018 tax year — the taxes you’ll file next year.

Funds saved in 529 plan accounts can, however, continue to be used for college expenses. After all, 529 plans were originally intended to encourage folks to save money for college.

Various other ways to save money for higher education remain available as well post-overhaul, H&R Block reports. They include:

  • Savings bonds
  • Educational assistance programs provided by employers
  • Coverdell education savings plans

What’s your take on these changes or the overall maintenance of the status quo? Share your thoughts below or over on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
12 Easy Ways To Make Make Money Online Without Leaving Home
12 Easy Ways To Make Make Money Online Without Leaving Home

If you’re hanging around the house a lot these days — and who isn’t? — use your time to make some extra cash.

10 Ways to Nail Savings on Your Remodeling Project
10 Ways to Nail Savings on Your Remodeling Project

Here’s how to save on your next remodeling project with discounted materials and more tips and tricks.

9 Ways to Boost Your Home’s Curb Appeal for Less Than $50
9 Ways to Boost Your Home’s Curb Appeal for Less Than $50

These products will instantly improve your home’s curb appeal without breaking the bank.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started


Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.