5 ways the new tax law affects families paying for college

The final version of the GOP tax bill that passed last month rewrites the tax code in many ways, eliminating deductions and adding new benefits. Some of these new provisions affect those paying for college.

After public outcry on several provisions proposed in the House's tax bill, the Senate version that passed last month left many tax credits related to higher education untouched.

The new tax bill keeps the deduction for student loan interest. Additionally, the tuition waivers that graduate students receive will stay tax free, and other tax credits – such as the Lifetime Learning Credit and the American Opportunity Tax Credit – remain unscathed.

RELATED: 13 states that tax Social Security income

15 PHOTOS
13 states that tax Social Security income
See Gallery
13 states that tax Social Security income

1. Colorado 

Photo credit: Getty

2. Connecticut 

Photo credit: Getty 

3. Kansas 

Photo credit: Getty 

4. Minnesota 

Photo credit: Getty 

5. Missouri 

Photo credit: Getty

6. Montana 

Photo credit: Getty 

7. Nebraska 

Photo credit: Getty

8. New Mexico 

Photo credit: Getty

9. North Dakota 

Photo credit: Getty 

10. Rhode Island 

Photo credit: Getty 

11. Utah 

Photo credit: Getty 

12. Vermont 

Photo credit: Getty

13. West Virginia 

Photo credit: Getty

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

"A lot of things didn’t change that we were worried about changing – the taxation of the tuition waiver, the taxation of employer tuition assistance. We worried about that happening, but it didn’t end up happening," Shannon Vasconcelos, director of college finance at College Coach, an admissions consulting firm.

But a few key changes will affect families and students who are financing higher education. Here are five new tax codes that may change a family's finances.

1. Deductions for interest on home equity loans and lines of credit are eliminated. Under the new tax legislation, the ability to deduct interest on home equity loans is suspended from 2018 to 2025.

"This one is a real big one that is a bummer for families," says Vasconcelos. "For a lot of families, it's the best interest rate – it's better than a lot of the education loan rates. A lot of families do tap their home equity to pay for college, so losing the deduction is going to cost them fairly significant money."

The new restrictive mortgage rules that cap interest on new loans to $750,000 will also "prevent many middle-income taxpayers from using home-equity loans in the future to fund college tuition, while generating tax-deductible interest," says Blake Christian, a CPA at Holthouse, Carlin, Van Trigt, a Southern California accounting firm.

2. Families can use 529 plans to pay for K-12 education. Families can now use qualified education expenses in a tax-advantaged 529 savings account to pay for elementary or secondary school tuition. The new tax code allows taxpayers to pay up to $10,000 per student per year in K-12 tuition.

But college experts caution some families against using this new flexibility with 529 accounts. Sean Moore, founder of SMART College Funding, worries that parents who redirect these funds to cover private school education may use the money too quickly and come up short for college.

Christian from HCVT says this benefit will largely help families with a high net worth.

RELATED: 10 universities where grads make highest starting salaries

11 PHOTOS
10 universities where grads make highest starting salaries
See Gallery
10 universities where grads make highest starting salaries

Georgia Institute of Technology

U.S. News rank: 34 (tie)

Median starting salary: $65,700

2017-2018 tuition and fees: $12,418 (in-state); $33,014 (out-of-state)

Learn more about the Georgia Institute of Technology.

Rensselaer Polytechnic Institute (NY)

U.S. News rank: 42 (tie)

Median starting salary: $66,000

2017-2018 tuition and fees: $52,305

Learn more about Rensselaer Polytechnic Institute.

Photo credit: Facebook

Princeton University (NJ)

U.S. News rank: 1

Median starting salary: $66,700

2017-2018 tuition and fees: $47,140

Learn more about Princeton University.

 Stevens Institute of Technology (NJ)

U.S. News rank: 69 (tie)

Median starting salary: $67,000

2017-2018 tuition and fees: $50,554

Learn more about the Stevens Institute of Technology.

Photo credit: Facebook

Worcester Polytechnic Institute (MA)

U.S. News rank: 61 (tie)

Median starting salary: $67,300

2017-2018 tuition and fees: $48,628

Learn more about Worcester Polytechnic Institute.

Colorado School of Mines

U.S. News rank: 75 (tie)

Median starting salary: $68,000

2017-2018 tuition and fees: $18,386 (in-state); $37,436 (out-of-state)

Learn more about the Colorado School of Mines.

Carnegie Mellon University (PA)

U.S. News rank: 25 (tie)

Median starting salary: $69,700

2017-2018 tuition and fees: $53,910

Learn more about Carnegie Mellon University.

Stanford University (CA)

U.S. News rank: 5 (tie)

Median starting salary: $70,300

2017-2018 tuition and fees: $49,617

Learn more about Stanford University.

Massachusetts Institute of Technology

U.S. News rank: 5 (tie)

Median starting salary: $76,900

2017-2018 tuition and fees: $49,892

Learn more about the Massachusetts Institute of Technology.

California Institute of Technology

U.S. News rank: 10

Median starting salary: $78,400

2017-2018 tuition and fees: $49,908

Learn more about the California Institute of Technology.

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

3. Colleges and universities will pay a new excise tax on endowments. A new excise tax levies a 1.4 percent on a private educational institution's endowments that amount to more than $500,000 per student.

The new provision affects scores of private universities with large endowments, such as Harvard University in Massachusetts, the University of Notre Dame in Indiana and Stanford University in California, to name a few.

"It's going to cost these colleges money. How much is going to be passed on to students and parents – we don't know yet. The colleges are just now figuring out how to deal with this new tax," says Vasconcelos from College Coach.

4. Student loans discharged for death or disability are now tax-exempt. The new tax code makes death and disability discharges of federal and private education loans tax-free.

Previously, the debt cancellation would be added as income on to the taxpayer's bill. Now the cancellation of the student debt is tax-free. But the new tax code only applies to discharges that occur during 2018 to 2025.

"It's great for those families who suffer from those devastating effects. But the reality is the people that it helps are hopefully very small," says Moore from SMART College Funding.

5. Alimony for recipients is no longer taxable. College consulting experts say this provision should make it easier for custodial parents to qualify for need-based aid when filling out the Free Application for Federal Student Aid, commonly known as the FAFSA. For the most part, the FAFSA for college-bound students relies on parental information, such as tax records.

"Without alimony showing up on their tax returns, divorced custodial parents, should be eligible for financial aid," says Joe Orsolini, president of College Aid Planners, a consulting organization in Illinois that helps families navigate paying for college. "This change will make is easier for them to qualify."

Even with this provision, the FAFSA uses tax records from the prior prior year – so there is a time gap to when this new tax code would benefit a custodial parent. But Orsolini says this should benefit these parents "unless the Department of Education catches on to this and changes the FAFSA."

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

Copyright 2017 U.S. News & World Report

Tax Tips for Real Estate Agents and Brokers

Most real estate agents and brokers receive income in the form of commissions from sales transactions. You're generally not considered an employee under federal tax guidelines, but rather a self-employed sole proprietor, even if you're an agent or broker working for a real estate brokerage firm. This self-employed status allows you to deduct many of the expenses you incur in your real estate sales or property management activities. Careful record keeping and knowing your eligible write-offs are key to getting all of the tax deductions you're entitled to.

Read More

Brought to you by TurboTax.com

What is the Educator Expense Tax Deduction?

The Educator Expense Tax Deduction allows teachers and certain academic administrators to deduct a portion of the costs of technology, supplies, and certain training. Here’s what teachers need to know about taking the Educator Expense Deduction on their tax returns.

Read More

Brought to you by TurboTax.com

Self-Employed Less Than a Year? How to Do Your Taxes

Have you been self-employed less than a year? If you’re just starting out, it’s possible you worked at a job earlier in the tax year before making the switch to self-employment, or you’re working multiple jobs. In this case, you may have more than once source of income you’ll need to report on your income tax return.

Read More

Brought to you by TurboTax.com

Taxes for Grads: Do Scholarships Count as Taxable Income?

Heading off to college to broaden your horizons is exciting, but funding your education via scholarships? That's even better. Scholarships often provide a path to education that might not be feasible otherwise, which is why the Internal Revenue Service (IRS) can be generous in minimizing students' tax obligations. But sometimes scholarship money does count as income, and it’s better to find out now if your scholarship adds to your tax liability than to have a surprise later. Here’s how to decode your scholarship taxation.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.