We have been following the new Stimulus bill for quite some time now, and last week President Obama was finally able to sign The American Recovery and Reinvestment Act into law. The finalized plan has potential to impact higher education (and those of us with students pursuing it!), so, as promised, I wanted to summarize for you the portions of the Stimulus that might potentially affect your family’s college funding plans:

• New Tax Credit. The American Opportunity Tax Credit will temporarily increase the Hope Scholarship credit - a potential dollar-for-dollar reduction in your federal income taxes - to a maximum claim of $2,500 (before the bill passed it was only $1,800). This tax benefit will only be in effect for 2009 and 2010.  Joint tax filers with Adjusted Gross Incomes (AGI) below $180,000 ($90,000 for single filers) will be able to take advantage of this provision.
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• Pell Grant Increase. The maximum on Pell Grants, which are awarded to students from low-income families, will increase to a total of $5,350 for 2009 and $5,550 for 2010. This increase is also temporary.  A Pell Grant is free money that doesn’t need to be paid back - the best type of financial aid!
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• Work Study. Around $200 million extra will be funneled into work study, the program that awards students part-time jobs on campus to.  Work study jobs get taken quickly.  If your student is offered work study as part of their financial aid package, make sure he or she applies for a job early as there are typically less jobs available than the number of students who have been awarded work study.

Other Changes Created by the Stimulus

The Stimulus package covers a wide range of other components that very well may affect your family’s finances in other ways. For a clear breakdown of the other areas that will recieve funding, I suggest taking a look at this chart from the Wall Street Journal.

No Loan Increases

Though earlier versions of the Stimulus bill included a potential increase in the availability of federal loan funds, this request from the House was omitted from the plan’s final version. The maximum federal loan amount will remain the same for the coming school year.

The economy is worsening as I write.  I expect this to be a challenging year for parents with a college-bound student in figuring out how to best navigate the current climate. Many colleges are feeling the pinch, financial aid applications are up and the stock market decline is affecting their ability to offer campus services and financial aid.  Now, more than ever, it is critical to design your own personal college funding plan so you can reduce your out-of-pocket costs as much as possible and determine how your family can pay most efficiently with the various resources you have available to you.  Many of you will be able to benefit from at least one new component of the Stimulus package. Make sure you remember to use what applies to you this coming year.

All the best,
Deborah Fox

photo: tizwas01’s spare change