During my research i found the following which may be useful:
MEMORANDUM FOR: CADETS AND PARENTS OF CADETS RECEIVING
SCHOLARSHIPS AND/OR EDUCATIONAL INVESTMENT PLAN PROCEEDS
10 June 2011
FROM: USAFA/FMP
SUBJECT: Cadet Scholarship and/or Educational Investment Plan Proceeds
1. The United States Air Force Academy (USAFA) Financial Management (FM) Office may
not accept cadet scholarships containing restrictions. Restrictions are any condition or limitation
an agency places on the use of their scholarship funds. Some examples include “must be used
for tuition, room and/or board,” “student is required to maintain a specific GPA,” “scholarship
funds will be paid back if cadet disenrolls,” etc. Cadet scholarships without restrictions or silent
on restrictions will continue to be accepted. Educational investment funds (e.g., 529 plans) may
not be accepted due to their federal and state tax restrictions and, based on the specific plan, may
have other restrictions on how the funds are used. Normally a university financial aid office
monitors scholarships and investment plan proceeds; however, the USAF Academy is not
eligible to participate in the student aid program and does not have a financial aid office. We do
not charge for tuition, room or board like other universities or have the authority to maintain
separate billing and receiving accounts required to monitor the restrictions levied by law. The
following will assist with scholarship and/or investment plan questions.
a. Scholarships: Scholarships should be payable directly to the cadet. When the agency
is unable to make payment directly to the cadet, the scholarship may be accepted by USAFA/FM
for credit to the cadet’s pay account provided there are no restrictions on the scholarship and the
check is payable to the U.S. Treasury. Scholarships silent on restrictions will be treated as nonrestrictive
and accepted. Scholarships accepted by USAFA/FM are never refunded to the agency
granting the scholarship, even if the cadet disenrolls. Checks shall be made payable to “US
Treasury” and mailed to HQ USAFA/FMF, 2304 Cadet Drive, Suite 2200, USAF Academy, CO
80840-5035. Checks will not be accepted until after 19 August 2011 for the Class of 2015. The
cadet’s full name and social security number must be included in the memo area of the check or
on an attached memo.
b. Investment Plans: The individual owner or administrator of the educational
investment plan determines the valid use of the funds based on specific fund requirements and
any state, federal and/or IRS restrictions. The owner/administrator shall consult their financial
advisor, tax advisor or legal advisor to ensure the specific fund rules are followed and if there are
procedures for providing proceeds directly to the cadet. Investment plan proceeds will not be
accepted by USAFA/FM, and if received, shall be returned to the originator. Based on
information provided by the IRS, it is our understanding that the Military Family Tax Relief Act
of 2003 provides that attendance at a U.S. military academy will be treated as a scholarship for
purposes of the 10% penalty on nonqualified withdrawals from a 529 plan or Coverdell ESA and
that the value of the no-cost education (as determined under the U.S. military code) can be
withdrawn penalty-free from a 529 plan or Coverdell ESA, although the earnings portion will
continue to be taxable. Accordingly, parents and financial planners have requested the Cost of
Education (CoE) for USAFA. Please understand that we are not attempting, and are not
authorized, to provide tax advice; we are simply providing information concerning the USAF
Academy CoE for recent Fiscal Years. You are advised to consult your own tax advisors
regarding permissible uses of this information. The USAFA CoE amount may be exempt from
the 10% additional tax IAW IRS rules (see IRS Publication 970). The CoE at a Service
Academy is defined in DoDD 1332.23 as: Those costs that are attributable directly to educating
a person at a Service academy under regulations prescribed by the Secretary of the Military
Department concerned and approved by the Office of the ASD (FM&P) (OASD (FM&P)) and
the Office of the Assistant Secretary of Defense (Comptroller) (OASD(C)). Such costs include a
reasonable charge for the provided education, books, supplies, room, board, transportation, and
other miscellaneous items furnished at government expense. Excluded are the costs for cadet
pay and allowances, uniforms, military training, and support for nonacademic military
operations. The following is the CoE for the Fiscal Year (FY) indicated.
FY10 $48,181 - 1 October 2009 - 30 September 2010
FY09 $42,240 - 1 October 2008 - 30 September 2009
FY08 $41,925 - 1 October 2007 - 30 September 2008
FY07 $42,333 - 1 October 2006 - 30 September 2007
2. USAFA is prohibited by law (10 U.S.C. 4360) from charging cadets for tuition, room or
board and does not issue IRS Form 1098-T, Tuition Statement. Any tax consequence resulting
from receipt of scholarships and/or educational investment plan proceeds is the responsibility of
the cadet. Additional information on educational benefits is available on the IRS web site; see
IRS Publication 970, Tax Benefits for Education.
3. Tuition, room, board and cadet income and expenses at USAFA:
a. USAFA cannot charge for tuition, room or board in accordance with 10 U.S.C.
4360. Tuition, room and board are provided to cadets without charge.
b. Cadet monthly base pay is $974.40 effective 1 January 2011. Cadet pay is equal
to 35% of a 2nd Lieutenant pay in accordance with 37 U.S.C. 203(c).
c. Cadet estimated expenses for Academic Year 2011/2012 (1 Jul 11-30 Jun 12) are:
Expense
Freshman
Sophomore
Junior
Senior
Uniforms 4,350 0 260 500
Computer 2,291 72 72 66
Personal Service Fees 1,728 297 297 272
Arts and Athletic Fees 170 170 170 170
Media and Textbooks 1,746 1,270 1,270 1,369
Total $10,285 $1,809 $2,069 $2,377
Definitions:
Personal Service Fees include barber, tailor, linen, dry cleaning and laundry.
Arts and Athletic Fees include reduced tickets to shows and sporting events.
Media includes KAFA radio, basic training yearbook and annual yearbook.
NOTE: Exact expenses are known only by the individual cadet based on their specific
circumstances. The amounts shown above are only an estimate. The individual cadet
receives a monthly Leave and Earnings Statement (LES) which provides information on
actual income and those expenses deducted from their pay.
4. The section of US Code that authorizes TSP participation applies only to those members
who are paid under 37 USC 204 (only covers active duty and reserve members). Cadets are paid
under a separate area of US Code (37 USC 203) and are therefore ineligible to participate in
TSP.
5. Please e-mail
usafa.fm@usafa.af.mil if you have questions on the information contained
in this memorandum which supersedes Memorandum 15 June 2010, same subject.
TERRY W. ANDERSON, DAFC, CDFM, MBA
Financial Management Policy