The Problem. Paying for the education is one of the largest financial outlays that most families face. I went to Washington & Lee for undergraduate and law school in the 1960s for $2,000 a year. The sticker price is now over $60,000 a year. The cost has gone up 30-fold in 50 years. According to the College Board, the average cost of attending a state university is $25,000 for a resident and the average private college cost is approximately $49,000. These costs increase at approximately 3% per year. What the College Board and the colleges do not talk about is that the cost needs to be grossed up for the state and federal income taxes that need to be paid on earned income that is used to pay for tuition. For instance, if you must pay $50,000 a year for 4 years of college, the payments going to the college total $200,000; but if you are in a 40% tax bracket, you have to divide $200,000 by 0.6 to get to the cash flow of $333,333 that will be required. It gets worse if we need to factor in interest on long term loans.
Practical next steps
- Note the date on this article. It describes the rules as they stood then, and tax procedure changes.
- Start from the notice you actually received: the number in the top right corner and the date printed on it decide what is still open to you.
- Pull your account transcripts before deciding anything. They show what the IRS believes about your account, which is not always what the letters say.
- If a deadline is running or the amount is significant, have someone read the file before you respond.
Official sources for current verification
- IRS Topic No. 201 — The Collection Process
- IRS Publication 594 — The IRS Collection Process
- IRS Topic No. 202 — Tax Payment Options
- IRS — IRS Audits
- Taxpayer Advocate Service — Audits in Person
- IRS — Accuracy-Related Penalty
Important notice
This material provides general information, not legal or tax advice. Tax outcomes depend on the facts, procedural history, applicable law, and current agency guidance. Reading this page does not create an attorney-client relationship.
