To get a slice of the increased Pell grant funds, students should complete a Free Application for Federal Student Aid, or FAFSA, as soon as possible.
Better tax creditsStudents from middle- and low-income households will benefit from the stimulus bill's $13.8 billion tuition tax-credit boost.
Dubbed the American Opportunity Tax Credit, the new break replaces and expands on the Hope scholarship tax credit. Under the new plan, the maximum tuition tax credit has been raised from $1,800 to $2,500 -- 100 percent reimbursement for the first $2,000 spent on higher education and 25 percent of the next $2,000 spent on qualified educational expenses.
The legislation expands the definition of "qualified educational expenses" to include books and required course materials.
Thanks to the new legislation, families that don't earn enough to pay income tax can receive a $1,000 refund. The legislation also allows students to apply for tax credits for all four years of their undergraduate education instead of just the first two years.
American Opportunity Tax Credit
A new tax credit gives students a break of up to $2,500. The credit is subject to the following income limits:
- $80,000 for single filers; partial tax credit up to $90,000 in income.
- $160,000 for joint filers; partial tax credit up to $180,000 in income.
The stimulus legislation raises the income limits for tax-credit eligibility. New limits for receiving the full credit are $80,000 for single filers, up from $48,000, and $160,000 for joint filers, up from $96,000.
Single-filers earning between $80,000 and $90,000 and joint filers earning between $160,000 and $180,000 will be eligible for a partial tuition tax credit.
After the 2010-11 school year, tuition tax credits will go back to 2009 levels.
Since the median U.S. household income is $50,233 according to the Census Bureau, many students qualify for the tax credit. However, in the past, not everyone who was eligible took advantage of the credit.
A study by the Urban-Brookings Tax Policy Center in Washington, D.C., found that one out of every three tax credit-eligible students misses out on tax savings simply by not applying.
More school-specific financial aidThe stimulus legislation also adds an additional $200 million in work-study funding, providing more paid job opportunities for students with demonstrated financial need. Income earned from work-study programs is not subject to income tax.
"It's going to give work-study jobs to about 81,000 more students," Kantrowitz says of the legislation. "It's not a lot, but it's a step in the right direction."
The impact of the increased work-study funds will vary from campus to campus, adds Kantrowitz, as will the effect of $39.5 billion the bill allocates to make up for state budget cuts. Many of these budget cuts targeted state-funded higher education institutions.
"The number of students applying for financial aid increased by 10.5 percent this past year," Kantrowitz says. "That's a record increase. That's 1.4 million additional students submitting FAFSA and those state funds will help colleges take care of some of that."
To land a work-study job, students must complete a FAFSA form to qualify then head to their financial aid office to find out what positions are available.
When talking one on one with an aid officer, students should also inquire about any new school-specific scholarships, grants or fellowships available for the upcoming school year.
After the 2010-11 school year, work-study funding will go back to its 2009 levels.