Going back to school as an adult

If you’re thinking about going back to school, here are several considerations that may help.

In this article:

• School expenses to consider
• Employer-sponsored financial assistance
• Financial aid options for returning students
• 529 plan funds
• Personal loans and assets
• Educational tax savings
• Lifelong learning courses for retirees
• Balancing work and school

School expenses to consider

One important question to ask yourself when going back to school as an adult is, “how much will it cost?” Before applying and enrolling in courses, it’s important to calculate the total anticipated price of your education. 

Along with tuition and fees, make sure to consider additional expenses, such as books, supplies, transportation, daycare and other associated costs. If you plan to focus on school without working, also factor in the amount of time that you won’t have an income. Once you have a rough cost estimate, you can create a budget to cover expenses and maintain your lifestyle. 

Employer-sponsored financial assistance

Continued professional development plays a significant role in any employee’s success. If you’d like to go back to school as an adult, consider talking to your employer to find out if your company offers tuition reimbursement benefits. If they do, make sure you fully understand the details of what tuition reimbursement entails. For example, some companies require that you maintain employment at the company a certain number of years or pay back the benefits if you leave.

Tax considerations of employer-sponsored educational assistance

The first $5,250 of employer-provided educational assistance is tax free, regardless of whether it’s for classes that are related to your current position. If your employer provides more than $5,250 in educational benefits during the year, you must generally pay tax on the amount over $5,250. However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. See Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Your employer should include the amount that you should claim as income in your W-2. For more information, see IRS Publication 508, Tax Benefits for Work-Related Education.

Financial aid options for returning students

Financial aid programs are another resource that can help make attending school more financially attainable. Start at your school’s financial aid office or visit www.ed.gov for information on federal financial aid. To qualify for federal financial aid, you must complete and submit a FAFSA (Free Application for Federal Student Aid) application. Your income, marital status and whether you will be working as a student will all play a role in how your financial aid is calculated. 

There are various types of federal financial aid, including:

• Loans. For graduate students, the two main federal loan programs are Direct Stafford Loans and Grad PLUS Loans. The Direct Stafford Loan allows graduate students to borrow up to $20,500 annually, while the Grad PLUS Loan does not have an annual borrowing limit. Both loans have different borrowing guidelines, so research thoroughly to decide which, if either, is the best option for you.
• Work-study jobs. This federal program allows undergraduate, graduate and professional students (whether full-time or part-time) to work part-time and earn money to help pay for education expenses. Not all schools participate, however. Check with your school’s financial aid office.
• Military aid. If you are a veteran (or a spouse or child of one), future military personnel or active duty personnel, you may qualify for military aid and benefits. Check with your local veteran’s office for more information about qualifying.
• Scholarships and grants. At the graduate level, scholarships are typically merit-based from the school of your choice; grants may also be awarded at the department level. When considering schools and specific programs to study, it may be worthwhile to check to see if there are any scholarships or grants available in your field.

 Learn more about financial aid.

529 plan funds 

529 plans are not just for your children. Adults can also use a 529 plan to pay for educational expenses. You can open a 529 plan account and designate yourself as a beneficiary or use funds in your child’s 529 account. For example, if your child attends a less expensive school or wins a scholarship and their college expenses are less than expected, you can use those funds by designating yourself as a new beneficiary without facing any tax penalties.

Additionally, 529 plans can offer federal tax breaks. Accumulative earnings from a 529 plan will not be taxed when you withdraw the funds to pay for school. In addition to federal tax savings, more than 30 states currently offer full or partial tax deduction or credit incentives for 529 contributions. Consider researching to find out if additional state 529 plan tax breaks apply to you.

Personal loans and assets

If you don’t have enough funds in your educational savings account or you don’t qualify for federal or institutional financial aid, you may need to borrow money from other sources or tap into other savings. 

• Private student loans from commercial lenders. These loans originate with a bank, credit union or other online lender rather than with the federal government and aren’t subject to the same limits as federal loans. However, the interest rates on private student loans are typically higher than federal student loans and they may have less generous repayment options so be sure to research your options. 
• Margin loan. With an Ameriprise margin loan, you can borrow against your non-retirement investment portfolio. Your Ameriprise financial advisor will help you understand the advantages, limitations and risks of securities-based lending.
• Personal savings. If you have money in a personal savings account, you may want to consider tapping into these funds to pay for your education. 
• Sale of assets. If you have investments or other assets, you might consider selling assets to generate additional funds. 
• Retirement funds. You can use your IRA to pay for college tuition and qualifying educational expenses before you reach retirement age without IRS penalties if you follow specific rules. For example, to avoid an early withdrawal penalty, you must show proof of attendance at an eligible school. Do note that when using an IRA to cover an education expense, you’ll still pay income tax on the portion of the distribution that would otherwise have been subject to income tax. Additionally, tapping into these funds will reduce your future savings and you'll miss out on the potential for tax-deferred growth.

Educational tax savings

Several federal tax incentives can help ease the financial burden of returning to school:

• American Opportunity credit: If you’re enrolled at least half-time, this credit is worth up to $2,500 in 2023 for tuition and related expenses for the first four years of undergraduate education. To receive the full credit, your modified adjusted gross income (MAGI) must be below $80,000 (single filer) or $160,000 (joint filer). A partial credit is available to single filers with a MAGI between $80,000 and $90,000, and joint filers with a MAGI between $160,000 and $180,000.
• Lifetime Learning credit: This credit is worth up to $2,000 in 2023 to cover the tuition and fees for higher education courses taken throughout your lifetime per tax return, not per student — but you must have at least $10,000 (single filer) or $20,000 (joint filer) in expenses to qualify for the maximum. To take the full credit, your MAGI must be below $80,000 (single filer) or $160,000 (joint filer). A partial credit is available to single filers with a MAGI between $80,000 and $90,000, and joint filers with a MAGI between $160,000 and $180,000. 

The American Opportunity credit and Lifetime Learning credit can't be claimed in the same year for the same student — it's one or the other.

• Student loan interest deduction: If you graduate with student loans, you may be able to deduct up to $2,500 of the interest you pay on a qualified education loan each year. To take the full deduction on your 2023 taxes, your MAGI must be below $75,000 (single filer) or $155,000 (joint filer). A partial deduction is available to single filers with a MAGI between $75,000 and $90,000, and joint filers with a MAGI between $155,000 and $185,000.

Lifelong learning courses for retirees

Perhaps you’re in retirement and want to learn a new set of skills beyond what you experienced in your career. Many universities across the country offer lifelong learning courses in a variety of different subjects for retirees — whether you want to take a course out of interest or if you want to seek new job opportunities. 

In fact, you can find in-demand jobs for seniors after retirement, including teaching and nursing. Some universities offer these college courses at a discounted tuition, while others are completely free for retirees. Retirees can also research scholarships to keep educational expenses low. Connect with program faculty staff to see which courses are available and what the financial implications may be.

Balancing work and school 

Often, one of the biggest challenges with going back to school is figuring out how to juggle multiple responsibilities and balance the demands of work, family and school. There is no one size fits all answer and you should consider your personal circumstances carefully before making a decision.

How an Ameriprise financial advisor can help

Going back to school can be a valuable experience for adults either in the workforce or in retirement. Your Ameriprise financial advisor can help you prepare and adjust your finances to make going back to school a reality, while also helping you stay on track for your long-term goals.