Dependency Tax Status and Student Financial Aid
August 8th, 2006Gail Buckner answers a question in Fox News’ Money Matters help section.
The woman wrote in for help asks about her son who:
…has a scholarship for $10,000 per year for 4 years. My husband and I have never really saved much for his education. We have agreed to pay $10,000 per year, as well, but he has to pay the rest. We have taken out parental Sallie Mae loans to cover our part of the bargain.
Would we be better off having him be independent, not declaring him, and taking the loans out as student loans?
The woman asking for help is perhaps a little confused about the difference between dependent and independent statuses in regards to tax and financial aid status. They are completely different
To claim your child as dependent in your tax return, you must prove that the child provides at least half of his own support. This is difficult for a full-time student, and is hardly ever the case. If it is the case, then Hope and Lifetime Learning tax credits (Form 8863) may be utilized if the student qualifies.
With financial aid:
…you’ve got to be 24 years-old or older to be declared ‘independent.’ The only exceptions are if you are a veteran, have a dependent yourself, are married, or have already received your undergraduate degree and are in graduate school.
In the end, the bottom line is what must be looked at. If you have the choice of declaring your child student as independent, then you must work out the two options. Just take note that a child must provide more than half of the support for themselves. Scholarships help, but one must look at the total cost of college, books, and all other costs of living.
Stafford Loans should be taken out first, and PLUS Loans for parents are a secondary option for high education costs.
Visit our page on student loans and taxes for more information.
