Types of Financial Aid

What is it?

The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction. Your family must file a federal tax return and owe taxes to get this tax credit. You can't get a refund for the Hope credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Hope tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.

Your family may claim a tax credit up to $1,500 for each eligible dependent for up to two tax years. In other words, your family may claim up to 100% of the first $1,000 of eligible expenses and 50% of the next $1,000 for a maximum credit of $1,500.

The exact amount of the Hope credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in your family, rather than a maximum dollar amount for the family, like the Lifetime Learning tax credit.

Who qualifies?

The Taxpayer: An eligible taxpayer must file a federal tax return and owe taxes to claim the Hope credit. In addition, the taxpayer must claim an eligible student as a dependent on the tax return, unless the credit is for the taxpayer or the taxpayer' spouse. (This means the eligible taxpayer may also be the eligible student.)

How do you get it?

To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law says that schools must send this information in the form of a statement to each taxpayer and to the IRS. By January 31 of the current year, you will receive a Form 1098-T which will include this information.

When is it available?

The taxpayer may claim the Hope credit for qualified expenses paid in tax years beginning January 1, 1998, and after, for education furnished in academic periods beginning on or after this date.

Taxpayers may pay educational expenses in a tax year for an academic period that begins following the tax year (e.g., paying in December 2000 for an academic period beginning in the first three months of 2001). Because the law did not take effect until January 1, 1998, you were not allowed to prepay for the first year of the credit.

Can a family claim multiple benefits?

A family may claim a Hope credit, a Lifetime Learning credit and an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs as long as the same student is not used as the basis for each credit or exclusion AND the family does not exceed the Lifetime Learning maximum per family.