Unfortunately, the U.S. retirement crisis is just one of the major saving issues facing the nation. Over the past 20 years, the cost of public, in-state tuition increased by 205% compared to its cost in the year 2000. Unfortunately, there’s little evidence that this trend will reverse.

Even worse, current prices have already reached a crisis point. According to the Department of Education’s Federal Student Aid Office, borrowers have an average loan balance of $37,667, with the nationwide student debt balance clocking in at over $1.6 trillion. As a result, a CNBC study found that “85 percent of student loan borrowers say difficulty in saving has delayed their ability to buy a house.”

What are students and parents to do? Fortunately, the problem has not gone unnoticed, and there are a number of federal programs available to help students and families pay for the cost of education. In this article, we’ll review five ways borrowers can get more bang for their buck when paying for education.

How to Get More From Your College Savings

Whether it's through a dedicated college saving plan, a variety of tax credits, or even a retirement account, there are a number of ways to get more from the money you’ve saved to pay for education.

529 College Saving Plan

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. With a 529 plan, employees can defer compensation from their paycheck into a 529 account. From there, funds are invested into a portfolio encompassing a variety of asset classes and vehicles. These investments grow tax-free and can be withdrawn tax-free to pay for qualified expenses, meaning each dollar goes a longer way than normal.

In general, savers have a lot of flexibility when deciding how to spend their 529 plan funds. Some of the qualified expenses include, but are not limited to:

• Room and board, including off-campus if the expense is within the school’s published cost of attendance
• Fees, books, supplies, and equipment
• Computers, peripherals, software, and the cost of internet access
• Expenses related to students with special needs
• Up to $10,000 per borrower per lifetime to pay off qualified student loans

American Opportunity Credit

Though 529 plans are a potent tool in their own right, prospective students can stretch their savings further by taking advantage of a number of tax credits. If you pay for your own education or that of an eligible student, you may qualify for the $2,500 American Opportunity tax credit. Importantly, this is a tax credit, not a tax deduction, meaning it can directly reduce your taxes owed by $2,500. Eligible students are those who:

• Are enrolled in a program that awards a credential
• Carry at least half the normal full-time workload
• Have not completed their first 4 years of postsecondary education
• Have not been convicted of a federal or state felony for possessing or distributing a controlled substance

Qualified expenses under the American Opportunity tax credit include tuition and expenses required for enrollment at an eligible educational institution. Eligible institutions include accredited organizations that are authorized to participate in the Education Department’s student aid program, as well as certain select institutions outside the United States. Beyond tuition, the “related expenses” covered by the American Opportunity tax credit include required expenses for books, supplies, equipment, and mandatory student fees.

However, there are income limits to the American Opportunity Tax Credit. In table form, these may be expressed as:

Note: For each student, you can elect for any year to take only one of the American Opportunity tax credit or the Lifetime Learning tax credit, as explained further below.

Lifetime Learning Credit

The Lifetime Learning tax credit is similar to the American Opportunity tax credit. As a taxpayer, you may be entitled to a $2,000 credit for qualified education expenses made on behalf of the students you’ve helped this year, including yourself. That said, for any year you may elect only one of the Lifetime Learning tax credit or the American Opportunity tax credit. For example, if you elect to claim the Lifetime Learning credit for a child on your 2021 tax return, you can't, for that same child, also claim the American opportunity credit for 2021.

Importantly, there are certain advantages the Lifetime Learning credit provides over the American Opportunity credit, despite the lower benefit amount. For example, students do not have to be enrolled in a program that awards a credential—they can take one-off courses to build new skills and still claim the credit. Further, as the name suggests, the lifetime learning credit applies for your lifetime. There are no limits on the number of years one can claim it.

That said, there are income limits for this credit, too. The table below demonstrates these limits in visual form:

Deciding which of the two credits to elect for a student on a given tax year can be difficult. While the $2,500 American Opportunity credit brings larger savings, it is limited in that it cannot be claimed for the same student for more than four years. On the other hand, there is no limit to the number of years the Lifetime Learning credit can be claimed for a student, but it is restricted to those with a Modified Adjusted Gross Income (MAGI) of $90,000 or less.

Student Loan Interest Deduction

With interest rates on federal student loans ranging from 4.99% to 7.54%, a significant chunk of a borrowers’ monthly payments can end up covering the interest alone. However, there is relief for some borrowers to be found. If they meet certain qualifications, they can deduct up to $2,500 of interest paid toward their student loans. To qualify, the borrower must:

• Have any tax filing status other than married filing separately.
• Have paid interest on a qualified student loan.
• Be legally obligated to pay interest on a qualified student loan.
• Not be claimed as a dependent by another person.

Note: If a claimant’s MAGI is between $80,000 and $95,000, their deduction will be subject to a gradual phase-out.

Early IRA Distribution Exception

In most cases, taking a distribution from one’s IRA before reaching the age of 59 ½ means accepting a 10% early distribution tax penalty. However, this rule carries a relevant exception: borrowers can take distributions from their IRA early to pay for qualified education expenses without incurring a 10% penalty. This method can be used to cover qualified expenses for oneself, one’s child, spouse, or grandchild.

“Qualified expenses” include tuition, fees, books, supplies, equipment required for enrollment or attendance at an eligible educational institution, and services related to special needs students. Early distributions can also be used to cover room and board, but only if the amount withdrawn does not exceed the cost of attendance figures listed by the student’s educational institution.

That said, many financial professionals discourage taking distributions from one’s retirement account to pay for non-retirement-related expenses. Though education is both a noble cause and often a worthwhile investment, financial advisors tend to view non-retirement withdrawals as an emergency-only option.

Conclusion: Consider Your Options for Education Costs

The tax credits and tax-advantaged saving plans in this article can be powerful tools in the search for an affordable education. Before embarking on an educational journey, be sure to understand your unique financial circumstances and the programs that may be available to you or your family.