The first provisions are those of the Hope Scholarship Credit. This Credit entitles students filing for themselves or their parents who claim them as dependents each to a $1,500 tax credit for educational expenses. A tax credit allows you to reduce your federal taxable income. The Hope Credit is allowed for the first two years of tuition and fees for students pursuing associate's degrees, bachelor's degrees, or professional credentials at accredited institutions. Specifically, Hope allows a tax credit of $1,000 for the first year and $500 for the second year of education. Singles earning $40,000 or more and couples earning $80,000 or more may not claim the credit. Convicted drug felons may not claim the credit. 

The second program is the Lifetime Learning Credit, which begins June 30, 1998. It expands the benefits of the Hope Scholarship Credit. The Lifetime Learning Credit allows a $1,000 per year tax credit for students pursuing associate's degrees, bachelor's degrees or professional credentials at accredited institutions. By the year 2002 the Lifetime Learning Credit will be expanded to a $5,000 maximum credit. The income restrictions are similar to those for the Hope Scholarship Credit. Unfortun-ately, both programs disallow credit for room and board and books and supplies. However, convicted drug felons are eligible to use the Lifetime Learning Credit.  

A third education tax incentive targets educational loan interest. Effective December 31, 1997, students or their parents may claim each a $1,000 deduction for educational loan interest. Similar to a credit, a deduction decreases tax liability. The allowable deduction will increase yearly to $1,500 in 1999; $2,000 in 2000 and $2,500 in 2001. Deductions are allowed only for the first 60 months of an educational loan. In addition to tuition and fees, the loan can be used to cover books, supplies and equipment. The deduction is disallowed for singles earning $40,000 or more and couples earning $60,000 or more.  

The next provisions passed by Congress expand the use of Individual Retirement Accounts (IRAs) to help with educational expenses. Traditionally, IRAs are used to supplement retirement income. Contribution to IRAs provide tax payers with beneficial tax treatment. Therefore, the Internal Revenue Service penalizes people who use IRAs for purposes other than retirement. Effective December 31, 1997, students and parents are no longer assessed a tax penalty for withdrawing retirement funds for education. Educational expenses for which IRAs may be withdrawn include tuition, room and board, fees, books, supplies and equipment. There is no income limitation, and family members may withdraw money for non-dependents.  

In addition to the expansion of withdrawals for IRAs, Congress created a special IRA account named the Education IRA for education expenses. It allows parents to contribute $500 a year to an IRA account. In return, parents are eligible to reduce their tax liability by $500 a year. Although not currently useful to students, the Education IRA provides incentive to save for a child's education.  

In sum, the Tax Payer Relief Act of 1997 contains a significant series of educational benefits. Measures which are important now are the Hope Scholarship Credit and the expansion of IRA withdrawals. Soon the Lifetime Learning Credit and the interest loan deduction will be useful. The Education IRA will play a role in family educational planning. You can learn more about the educational provisions by accessing the IRS on the internet at www.irs.gov.