The news is full of stories about the student loan debt crisis. The Consumer Financial Protection Bureau reported recently that the debt burden for both private and federal loans in this country has topped $1.2 trillion And, more than 7 million American borrowers have defaulted on their loans.
College is not cheap, and it is not getting any cheaper. In the Bay Area, living on campus can cost more than $24,000 per year, according to the California State University system's website. Costs increased by more than 20 percent from the 2010-2011 school year to the 2011-2012 term.
The state actually has a program in place that helps students pay for books and housing. The Cal Grant B program currently awards low-income students, on average, $1,648 a year. Gov. Jerry Brown recently signed two bills into law that will increase that grant to somewhere between $3,000 and $5,000 a year. That's not the only good news, though: Rather than a new tax, the bills institute a new tax credit.
The law creates the College Access Tax Credit Fund that will accept charitable donations for the Cal Grant B program. The donors will then be eligible for a tax credit on their state return. The credit is significant: 60 percent in 2014, 55 percent in 2015 and 50 percent in 2016.
Even better, donors can also claim the donations as deductions on their federal income tax returns. If the donation is reported as a charitable donation to the state, though, the taxpayer cannot take the deduction on the federal return.
So, what is the difference between a tax credit and a charitable deduction? We'll explain in our next post.
Source: SFGate, "Huge tax break for donating to California college students," Kathleen Pender, Oct. 3, 2014