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Scholarships and grants get better grades than borrowing and tax breaks as ways to pay college costs

College costs are getting a lot of attention right now. The fall semester is nearly here and Congress is still fighting over federally subsidized student loan rates.

But instead of borrowing, a new study by educational loan provider Sallie Mae finds that today's students are relying more on money they don't have to pay back.

"How America Pays for College 2013" reports that scholarships and grants are the biggest source of college funding, paying for 30 percent of costs, up from 25 percent four years ago. The average amount of such free money grew to $6,355, up from $4,859 in 2009. 

How the Typical Family in 2013 Pays for College
Average Percent of Total Cost Paid from Each Source Paying college costs Sallie Mae-Ipsos 2013 survey

Source: Sallie Mae/Ipsos report "How America Pays for College 2013"

But don't despair, mom and dad. You, or at least your wallets, are still needed. Parents' money was the second most popular college cost source in the latest survey, covering 27 percent of higher ed expenses.

Reliance on parental resources, however, is down, says the study, from 2010's peak funding source of 37 percent. And the average out-of-pocket spending by mom and dad on college has dropped to $5,727 from $8,752 in 2010.

Who's borrowing, how much: As for borrowing, 18 percent of the total cost of college in 2013 was covered by student borrowing and 9 percent by parent borrowing.

Borrowing by parents has remained fairly consistent over the past five years, according to the report, but the share of college costs covered by student borrowing increased last year from prior years.

And while slightly fewer students borrowed to pay for college in 2013, those who did take out a loan got more money than in previous years.

Seniors are more likely to borrow than students earlier in their college careers. And students at private colleges tend to borrow more than do kids studying at public universities and community colleges.

Tax help for education costs: Taxes do make a couple of appearances in the 2013 Sallie Mae study, in connection with specialized savings plans and some benefits for higher education costs.

More parents now turn to 529 savings plans to fund their children's college, according to the report.

This educational saving account's name comes from the Internal Revenue Code section under which the plans were created. They are operated by a state (almost every one has a plan) or educational institution and help families set aside funds that can be withdrawn tax-free to pay future college costs.

Last year, 17 percent of families tapped 529 funds, the highest percentage since the study began in 2008.

The Sallie Mae-Ipsos 2013 study also found that students who took out private education loans rather than federally subsidized ones were more likely to claim education tax credits or take the above-the-line deduction for student loan interest.

Consolidating tax credits: Would more people claim educational tax credits if the process was easier? A couple of congressmen think so.

Bankrate Taxes Blog icon In one of my posts last week at my other tax blog, I looked at a proposal by Sen. Marco Rubio (R-Fla.) and Rep. Aaron Schock (R-Ill.) to reduce some of the education tax benefits complexity by replacing three tax breaks with one tax credit.

Rubio's and Schock's so-called Higher Education and Skills Obtainment Credit would be a $2,500 nonrefundable tax credit that would take the place of the American Opportunity Tax Credit, the Lifetime Learning Credit and the tuition and fees tax deduction.

Outdated sales tax systems: My other tax post at Bankrate last week looked at sales taxes, specifically a recommendation by the Center on Budget and Policy Priorities to bring these levies into the 21st century.

You can usually find my Bankrate Taxes Blog items at that personal finance website on Tuesdays and Thursdays.

But don't despair if you miss them those days. Check here at the ol' blog the next weekend, where you'll find a summary and links.

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