Many Parents Inaccurately Claim College Tax Credit

From USAToday:

More than 314,000 taxpayers made inaccurate claims for a popular tax credit that helps pay college expenses, getting $532 million they weren't entitled to receive, a government report said Thursday.

The Hope Credit provides up to $1,650 a year to help pay expenses for the first two years of college. The taxpayers claimed the credit for the same student three consecutive years, instead of the two years available, said a report by the Treasury inspector general for tax administration. Auditors reviewed two three-year periods, ending in 2006 and 2007. About 58,000 claimed the credit a fourth consecutive year in 2007. The inspector general's report do not list names of taxpayers.

The report said the Internal Revenue Service needs better tools to detect and fix inaccurate claims, and the IRS agreed. The problem should ease since Congress has expanded the credit to four years of college, for those claiming the credit in 2009 and 2010.

"The Hope Credit is intended to help taxpayers pay for the ever increasing cost of higher education," said J. Russell George, the Treasury inspector general for tax administration. "It is imperative that the IRS works with the Treasury Department and Congress to obtain the tools it needs to effectively administer this important credit."

The report recommended that Congress authorize the IRS to fix tax returns that incorrectly claim the credit, much in the same way the agency fixes routine math errors. It also recommended new reporting requirements to help the IRS match expenses claimed by students with those reported by schools.

Even As Kids Pack to Go to College, It's Not Too Late For Aid

Earlier today I came across this great USA Today article reminding students and parents that even this close to school season, financial aid is still available for students. The article also offers several helpful tips on how to finance higher education in the tough economy, check it out below.

Few things are more demoralizing than receiving a bill that exceeds the amount of money in your bank account. Especially if your child's future hangs in the balance.

That's the predicament facing many cash-strapped parents of college students as bills for the upcoming semester start to arrive in the mail.

Fortunately, even at this late date, you have options. Among them:

Extended-payment plans. These plans let you pay your tuition bill in monthly installments instead of one lump sum. You'll typically pay a fee of $50 to $100 to set up a payment plan. The plans are provided through colleges and universities, so contact your school's financial aid office for more information.

You don't have to put the entire amount you owe on a payment plan, says Thomas Blair, director of financial aid at Roanoke College in Salem, VA. But paying even a small amount of the balance in monthly installments will reduce the amount you have to borrow, he says.

Federal student loans. Unsubsidized federal Stafford loans are available to all full-time students, regardless of financial need. They carry a fixed rate of 6.8%. For the 2009-10 academic year, dependent students can borrow up to $5,500 for their freshman year. Sophomores can borrow up to $6,500 and juniors and seniors can borrow up to $7,500.

To qualify for a federal student loan, you must fill out the federal Free Application for Federal Student Aid, or FAFSA. You can find the form online at www.fafsa.ed.gov.

PLUS loans. If federal loans won't cover all of your costs, you can apply for a federally guaranteed Parent Loan for Undergraduate Students to fill in the gap. Parents are responsible for repaying the loans, but have the option of deferring payments until the child finishes school. PLUS loans carry a fixed rate of 8.5%.