Taxpayers can continue to claim a credit for education expenses including textbook purchases.

Prepare for Financial Aid Changes in 2013

Some components of college funding will or could change this year.

Taxpayers can continue to claim a credit for education expenses including textbook purchases.

Taxpayers can continue to claim a credit for education expenses including textbook purchases.

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The new year is only a few weeks old, but there are already reasons for college students to pay attention to the financial aid landscape for 2013. 

As part of a deal passed January 1 to avert the so-called fiscal cliff, education tax benefits previously set to expire were extended for five years. Through 2017, families or students can claim the American Opportunity Tax Credit (AOTC) to receive a credit of up to $2,500 for college expenses, including tuition and textbooks. 

[Find out about renting textbooks.] 

Other changes include the revival of the Tuition and Fees Deduction, which had expired in 2011 but can now be claimed through 2013. Students, spouses, or parents can deduct up to $4,000 on their income tax returns for qualifying education expenses paid, including any school-mandated fees necessary to enroll or attend. 

But the future of other federal education funding for 2013 is still up for debate, as members of Congress have until March 1 to pass new legislation that would prevent cuts to popular financial aid programs such as federal work-study. Barring action, some programs will be set for automatic cuts in what's known as sequestration. 

"We're looking to see what will happen to the campus-based programs, federal work-study and Federal Supplemental Educational Opportunity Grants [FSEOG], as far as funding," says Pat Watkins, director of financial aid at Eckerd College in Florida. "Those were not spared in the fiscal cliff [deal] and they are up for reduction if we go into sequestration." 

This year, some students could receive college financial aid awards that include funding that might ultimately get cut, Watkins says. Eckerd College, for one, will dole out aid based on "what we hope we're going to have," she notes. 

[Avoid these assumptions about college financial aid awards.] 

"Many schools [may] put a lot of caveats in their award letters, saying, 'This is contingent on federal funding,'" she notes. 

The fate of subsidized student loan interest rates also rests with Washington politicians, who last year put a temporary freeze on a pending doubling of interest rates for certain undergraduate loans. Instead of rising from 3.4 percent to 6.8 percent last July 1, the interest rate on subsidized Stafford loans was kept at 3.4 percent through June 30, 2013. If Congress doesn't take action beforehand, the rates will automatically double on July 1 of this year for new loans. 

The potential interest rate uptick may not be immediately recognizable to many students, notes Brian Quisenberry, director of financial planning at Birmingham-Southern College in Alabama. 

"I don't know if that effect is really felt by the student until after they graduate," Quisenberry says. "Then all of a sudden, it's, 'Bam—What do you mean I have X thousand dollars in interest on all this stuff?'" 

[Find out how to start paying off student loans.] 

To stay up to date on the most recent changes to student financial aid, such as student loan interest rates, stay in contact with your college financial aid administrators, and check back with U.S. News Education in the coming months. 

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.