Certain states and agencies also have programs that allow people to buy credits or certificates or make contributions to accounts that can be used to pay higher education expenses. These programs are usually referred to as state tuition programs or pre-paid tuition programs. The contributions are not tax deductible but the earnings from the accounts are not taxed when used for higher education expenses.

Many families have used EE savings bonds as a way to accumulate funds for college. The interest on these bonds, if they were used after 1989 and used to pay qualified college expenses, can be excluded from gross income on your tax return. This exclusion depends on the family's income and other financial aid and tax benefits that the student or parents may have received.

Eligibility for tax credits, deductions, and deferrals involves complex rules and calculations. You should seek the advice of someone who has experience with these provisions. You can also read IRS Publication 970, Tax Benefits for Higher Education.

Serve in AmeriCorps

AmeriCorps is a domestic service organization in which thousands of young men and women are working in community service projects around the country in exchange for a living allowance averaging $7,500 per year; health care; child care when needed; and an education award of $4,725 per year for paying back a student loan or for financing postsecondary education. Under some circumstances a person can serve part time and receive an education award of $2,362 per year.