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As the grim scenario in student loans and escalating tuition fees continue, many parents and students are at a loss as to how they are going to raise money this fall. There is a silver lining in the cloud here. They could be eligible for a tax refund of $2500. February saw the stimulus bill for higher education tax credit being made a law. This law is great news for Americans who could get back dollars for paying their tuition fee this year. Just file taxes to get your own money back as financial aid this year.

Just as any other Federal tax code, complicated rules may actually delay the process. However according to experts, the new law is more open and inclusive as compared to the older tax credits where many were not able to get any benefits.

According to the new tax credit provision, even those who do not owe any taxes are eligible for a refund of up to $1000. If you have paid book expenses, fee and tuition fee in the years 2009 and 2010, then you will be eligible for this tax credit. This credit is available exclusively for undergraduates who have at least fifty percent attendance.

Another condition for eligibility is this scheme is available only for taxpayers below an income of $80,000 a year. For those earning more than this, they can avail of this benefit in a phased out manner. If the student is already under a grant or scholarship for books, fees and tuition, then he or she is not eligible for the scheme. A student with a record of felony conviction also cannot avail of this benefit.  

Even students who borrow and pay their fees and books are eligible to collect the tax credit. If a parent has two children studying in the same university, they can apply for tax credit for both. Some have a doubt as to whether they are eligible to benefit from this scheme if they already earn too much. Well, yes, there are other benefits you can avail of though they are not as valuable as the credit.

For example, there are schemes such as the lifetime learning credit which offer up to $2000 for students who are in job related courses, part timers and who have already graduated. The benefit can be availed of by the student by claiming a deduction on student loan interest as well as tuition and fees on their tax forms. It is important to ensure you do not apply for double benefits. Take advantage of only one of the breaks.

In order to avail of the benefit, the tax payer has to fill out in advance the following year’s IRS form 8863. It is also in your interest to keep proper records of your tuition fee payment and other expenses. Being aware of various schemes and taking advantage of these could provide students with  a lot of breaks in their college expenses.