MONEY Health Care

This Fast-Growing Health Plan is Great for Your Boss—But Maybe Not for You

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Thomas Barwick—Getty Images

High-deductible health insurance plans save employers money, a new study finds. Trouble is, when workers have to shoulder more costs, they may also skip getting medical care.

Got a high-deductible health plan? The kind that doesn’t pay most medical bills until they exceed several thousand dollars? You’re a foot soldier who’s been drafted in the war against high health costs.

Companies that switch workers into high-deductible plans can reap enormous savings, consultants will tell you—and not just by making employees pay more. Total costs paid by everybody—employer, employee and insurance company—tend to fall in the first year or rise more slowly when consumers have more at stake at the health-care checkout counter whether or not they’re making medically wise choices.

Consumers with high deductibles sometimes skip procedures, think harder about getting treatment and shop for lower prices when they do seek care.

What nobody knows is whether such plans, also sold to individuals and families through the health law’s online exchanges, will backfire. If people choose not to have important preventive care and end up needing an expensive hospital stay years later as a result, everybody is worse off.

A new study delivers cautiously optimistic results for employers and policymakers, if not for consumers paying a higher share of their own health care costs.

Researchers led by Amelia Haviland at Carnegie Mellon University found that overall savings at companies introducing high-deductible plans lasted for up to three years afterwards. If there were any cost-related time bombs caused by forgone care, at least they didn’t blow up by then.

“Three years out there consistently seems to be a reduction in total health care spending” at employers offering high-deductible plans, Haviland said in an interview. Although the study says nothing about what might happen after that, “this was interesting to us that it persists for this amount of time.”

The savings were substantial: 5% on average for employers offering high-deductible plans compared with results at companies that didn’t offer them. And that was for the whole company, whether or not all workers took the high-deductible option.

The size of the study was impressive; it covered 13 million employees and dependents at 54 big companies. All savings were from reduced spending on pharmaceuticals and doctor visits and other outpatient care. There was no sign of what often happens when high-risk patients miss preventive care: spikes in emergency-room visits and hospital admissions.

The suits in human resources call this kind of coverage a “consumer-directed” health plan. It sounds less scary than the old name for coverage with huge deductibles: catastrophic health insurance.

But having consumers direct their own care also requires making sure they know enough to make smart choices like getting vaccines, but skipping dubious procedures like an expensive MRI scan at the first sign of back pain.

Not all employers are doing a terrific job. Most high-deductible plan members surveyed in a recent California study had no idea that preventive screenings, office visits and other important care required little or no out-of-pocket payment. One in five said they had avoided preventive care because of the cost.

“This evidence of persistent reductions in spending places even greater importance on developing evidence on how they are achieved,” Kate Bundorf, a Stanford health economist not involved in the study, said of consumer-directed plans. “Are consumers foregoing preventive care? Are they less adherent to [effective] medicine? Or are they reducing their use of low-value office visits and corresponding drugs or substituting to cheaper yet similarly effective prescribed drugs?”

Employers and consultants are trying to educate people about avoiding needless procedures and finding quality caregivers at better prices.

That might explain why the companies offering high-deductible plans saw such significant savings even though not all workers signed up, Haviland said. Even employees with traditional, lower-deductible plans may be using the shopping tools.

The study doesn’t close the book on consumer-directed plans.

“What happens five years or ten years down the line when people develop more consequences of reducing high-value, necessary care?” she asked. Nobody knows.

And the study doesn’t address a side effect of high-deductibles that doctors can’t treat: pocketbook trauma. Consumer-directed plans, often paired with tax-favored health savings accounts, can require families to pay $5,000 or more per year in out-of-pocket costs.

Three people out of five with low incomes and half of those with moderate incomes told the Commonwealth Fund last year their deductibles are hard to afford. Many households simply lack the resources to make out-of-pocket health costs, shows a recent study by the Kaiser Family Foundation. (Kaiser Health News is an editorially independent program of the Foundation.)

As in all battles, the front-line infantry often makes the biggest sacrifice.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

MONEY Taxes

Does My Teen Really Have to File Taxes?

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Erik Dreyer—Getty Images

April 15 is rapidly approaching, and you know you have to file a tax return, but does your teen have to?

You know you have to file a tax return, but does your teen? The deadline is rapidly approaching, and he or she may — or may not — have received forms relating to income last year.

Chances are, your teen does not have to file. John Scherer, a certified financial planner with Trinity Financial Planning in Middleton, Wis., said they do not have to file if they have investment income of less than $1,000 or earnings of less than $6,200.

If your teen is under those thresholds and worked a job that withheld taxes, though, he or she would want to file to get those withholdings refunded. So encourage your teen to collect those W-2s, even if it seems like a lot of trouble for a refund that doesn’t sound terribly impressive (and yes, he or she might have multiple W-2s, if there were paychecks from a summer job, a part-time job and a holiday job). If your child is not required to file, the April 15 date does not apply, but it’s still a good idea to dig out those forms, if for no other reason than to emphasize they are important papers and should not be disregarded.

And even if W-2s weren’t issued (as for babysitting), it’s smart to keep — or to begin to keep — a record of earned income, Scherer said. This can be as simple as keeping a log and making corresponding deposits to a bank account. Those earnings won’t owe income tax so long as they add up to less than the standard deduction ($6,200 for 2014). (Update: Keep in mind, if your teen earns $400 or more and they are not employed by someone else, this income is considered self-employment income and they must file a tax return and pay self-employment taxes, warns Burton M. Koss, an enrolled agent with Cortes & Baker LLC.) Where the record of earnings can come in handy is with establishing a Roth IRA. While we don’t expect most teens to want to save all they earned for retirement, the limit is 100% of earnings or $5,500, whichever is smaller. So a parent or grandparent could put money into a Roth on the teen’s behalf, as long as the teen has earned income. And the young person’s retirement savings will not be counted against possible financial aid for college, but will have more years to increase in value.

So it’s smart to file, even if it’s optional and little or no refund is coming. Your teen might get a little tax money back, assuming it was withheld, and he or she should also get a glimpse of what taxes are and how they work — and some early practice at keeping records for tax purposes. Parents would be wise to “walk through it with the kids,” Scherer said. “For most folks, taxes are one of their biggest expenses they have.” And learning early that planning ahead can save real money can only help teens later.

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MONEY Health Care

Who Covers the Costs of Preventive Surgery Like Angelina Jolie’s

Actress Angelina Jolie
Matt Sayles—Invision/AP

Faced with a genetic predisposition to cancer, Angelina Jolie opted for a preventive surgery to remove her ovaries and fallopian tubes. But can other women afford to do the same?

This week, actress and director Angelina Jolie took to the New York Times to announce a big decision: She had her ovaries and fallopian tubes surgically removed, a preventive measure meant to decrease her risk of ovarian and breast cancer. This surgery followed her preventive double mastectomy in 2013.

After losing her mother, grandmother, and aunt to cancer, Jolie underwent genetic testing and learned that she had a mutation in one of her BRCA genes, a tumor-suppressor gene. That means she too has an increased risk of developing breast cancer and ovarian cancer.

“I feel feminine, and grounded in the choices I am making for myself and my family,” Jolie wrote. “I know my children will never have to say, ‘Mom died of ovarian cancer.'”

The good news: If you share Jolie’s predisposition to cancer, the same treatment options are probably available to you. Most insurers will cover preventive surgery for women with a BRCA mutation, says Lisa Schlager, vice president for community affairs and public policy at Facing Our Risk of Cancer Empowered (FORCE), a nonprofit organization devoted to hereditary breast and ovarian cancer. (Generally, Medicare and Medicaid aren’t as generous, Schlager says.)

That’s been true for a long time—a 2001 study found that 97% of preventive surgeries for women with BRCA mutations were fully covered by insurance (except for deductibles and copays).

The surgery can be costly. According to HealthSparq, a health care costs transparency firm, the average national cost for the surgical removal of the ovaries and fallopian tubes is $12,381.

That’s the average insurer-negotiated price, based on actual claims data from 67 health plans. In other words, that’s the average price insurers have agreed to pay hospitals and health providers for the procedure. You can expect to pay a smaller portion of that cost, depending on your health plan’s deductible, co-pays and co-insurance.

Today, the average deductible for Americans with single, employer-subsidized health coverage is $1,217, which means most need to pay more than a grand out-of-pocket before insurance begins to cover the bulk of their costs, according to the Kaiser Family Foundation.

“It really depends on your insurance and your deductible,” Schlager says. “Some people have a very high deductible, and we’re referring them to services that provide financial assistance.”

Prices can also vary significantly by region. According to HealthSparq, the average cost of the procedure is $8,693 in Maryland, but $20,763 in San Francisco, a $12,070 price gap.

Market Average Cost
San Francisco – San Jose CA $20,763.06
San Diego CA $16,508.06
Miami – Fort Lauderdale FL $16,441.37
LA – Orange County CA $16,378.38
Houston TX $14,687.49
Austin – San Antonio TX $13,617.29
New York City – White Plains NY $13,591.84
Dallas – Fort Worth TX $13,404.92
New Orleans LA $12,049.43
Cinncinati – Dayton OH $11,987.74
Columbus OH $11,335.80
Albany NY $9,559.04
Washington DC – Arlington VA $8,747.73
Maryland $8,692.77
AVERAGE NATIONAL $12,380.55
PRICE GAP $12,070.29

But generally, insurers will cover the surgery. After all, “the surgeries are less expensive to the private insurers than if you were to get cancer,” Schlager says.

How do you know if you’re at risk? According to guidelines from the National Comprehensive Cancer Network, you should get screened for genetic abnormalities if any of your family members develop ovarian or fallopian tube cancer, breast cancer in both breasts, breast and ovarian cancer, breast cancer before age 50, male breast cancer, or other signs of hereditary breast-ovarian cancer syndrome. You should also get tested if more than one blood relative on the same side of your family has breast, ovarian, fallopian tube, prostate, pancreatic, or melanoma cancer. The U.S. Preventive Services Task Force, which helps implement the Affordable Care Act, made similar recommendations.

Schlager says the cost of genetic testing has “dropped substantially” in recent years, to between $1,500 and $4,000. Most insurers will cover genetic testing if you meet the national guidelines, but if your insurer refuses, some labs have financial assistance programs to limit your out-of-pocket cost to about $100, Schlager says.

Then you should meet with a genetic counselor. The Affordable Care Act mandates that health insurers cover genetic counseling with no cost-sharing if you have an increased risk of breast or ovarian cancer. That is to say, genetic counseling is a women’s preventive service that should be free to you, like birth control.

Jolie was quick to note that her choice isn’t the answer for everyone. “A positive BRCA test does not mean a leap to surgery,” Jolie wrote. “I have spoken to many doctors, surgeons and naturopaths. There are other options.”

A genetic counselor should help you understand the implications of preventive surgery and consider other less invasive—but less effective—measures, like increased cancer screenings. “It’s a very personal decision, and every family is different,” Schlager says. “Your first step is to talk to your doctor.”

MONEY College

How to Decipher a Financial Aid Letter

magnifying glass over $5 in dark
Alamy—Alamy

The financial aid letters that colleges send accepted students are often confusing. Here's how to figure out how much a school will really cost.

When colleges start releasing their admissions decisions toward the end of March, it’s easy for applicants and their parents to figure out the end result: You’re in, you’re out, or you’re on the waiting list.

Unfortunately, when those same schools release their financial aid decisions for accepted students, the results aren’t quite so clear.

Over the years that I’ve worked with families as an independent college admissions counselor, I’ve learned that the financial aid letters that arrive in the mail can be terribly confusing. Parents’ sweat turns icy cold as they try to figure out which college offers the best deal. It takes some work to decipher exactly how much help a family is being offered.

The first step for families trying to assess financial aid packages from different schools is to separate “family money” from “other people’s money.” This process helps focus the mind — and the budget — on forms of financial aid that truly reduce the overall cost of a college education.

Each college provides a total Cost of Attendance — the educational equivalent of the manufacturer’s suggested retail price. The COA includes tuition, fees, room, board, a travel allowance, and a bit of spending money that is somewhat randomly determined by the director of financial aid.

Generally, I find these estimates a bit low, so I encourage families to think about these variable expenditures — things like travel, pizza, cell phones, and dorm furnishings — and come up with a more realistic figure. Then I put these figures into a spreadsheet so that we can see how the starting price tags of similar colleges can vary widely.

Then we tally up the “other people’s money” in the financial aid letter — grants and scholarships with no strings attached. OPM reduces the bottom-line cost of a college education.

Throughout the college selection and application process, I like to help my families zero in on those schools that will be most generous. Assuming all has gone well, a good student may receive 50% or more off the price of tuition. That can be a good chunk of change.

Once we’ve subtracted the OPM from the COA, then we look at the part of the financial aid award that’s dressed up as “aid” …but is really just the family’s money in disguise.

This gussied-up aid comes in two forms. First is work-study aid, which is merely an expectation of a kid’s sweat equity in the coming years. Work-study aid is family money that doesn’t yet exist.

Then there are the loans. Generally, I won’t let my clients borrow more than the maximum that the government will lend to the student directly. These are the federal loans that max out at $27,000 for a 4-year undergraduate education.

Armed with all this information, we then create a spreadsheet to line up the different COA prices and subtract the OPM. That helps us arrive at a total cost of the education to the family — including both the immediate costs and the subsequent costs in the form of either future employment or loans that will have to be repaid.

And if we really want to get down and dirty, we can add the cost of interest over the life of those loans to illustrate exactly how much that college education will cost.

Unless the family has front-loaded the process by picking schools that are likely to maximize the grants and scholarships, I’ve found that most families are taken aback by the cost of college.

But with strong planning and a realistic look at the numbers, families can make wiser long-term financial decisions.

For example, a family I worked with a few years back made the painful but smart decision not to send their daughter to Notre Dame, which offered her nothing in scholarship aid, but to choose Loyola University of Maryland, which with a lower COA and hefty scholarship saved the family over $100,000 for her bachelor’s degree.

The family had money left over to buy their daughter a nice used car, cover expenses for a great summer internship in New York, and subsidize a spring-break service trip to New Orleans. And the young woman graduated from college debt-free.

As parents of college-bound seniors suddenly realize this time of year, a college education is not priceless. A cold, hard look at the numbers makes the price very clear, and enables a family to make the most reasonable financial decision possible.

———-

Mark A. Montgomery, Ph.D., is an independent college admissions consultant. He advises families around the country on setting winning strategies for both admissions and financial aid. He also speaks to schools and civic groups nationwide about how to choose, and get into, the right college. His firm, Montgomery Educational Consulting, has offices in Colorado and New Jersey.

MONEY Taxes

How to Make Tapping a $1 Million Retirement Plan Less Taxing

adding machine printing $100 bill
Sarina Finkelstein (photo illustration)—Mike Lorrig/Corbis (1); iStock (1)

With a seven-figure account balance, you have to work extra hard to minimize the tax hit once you starting taking withdrawals.

More than three decades after the creation of the 401(k), this workplace plan has become the No. 1 way for Americans to save for retirement. And save they have. The average plan balance has hit a record high, and the number of million-dollar-plus 401(k)s has more than doubled since 2012.

In the first part of this four-part series, we laid out how to build a $1 million 401(k) plan. Part two covered making your money last. Next up: getting smart about taxes when you draw down that $1 million.

Most of your 401(k) money was probably saved pretax, and once you start making withdrawals, Uncle Sam will want his share. The conventional wisdom would have you postpone taking out 401(k) funds for as long as possible, giving your money more time to grow tax-deferred. But retirees must start making required minimum distributions (RMDs) by age 70½. With a million-dollar-plus account, that income could push you into a higher tax bracket. Here are three possible ways to reduce that tax bite.

1. Make the Most of Income Dips

Perhaps in the year after you retire, with no paycheck coming in, you drop to the 15% bracket (income up to $73,800 for a married couple filing jointly). Or you have medical expenses or charitable deductions that reduce your taxable income briefly before you bump back up to a higher bracket. Tapping pretax accounts in low-tax years may enable you to pay less in taxes on future withdrawals, says Marc Freedman, a financial adviser in Newton, Mass.

2. Spread Out the Tax Bill

Taking advantage of low-tax-bracket years to convert IRA money to a Roth can cut your tax bill over time. Just make sure you have cash on hand to pay the conversion taxes.

Say you and your spouse are both 62, with Social Security and pension income that covers your living expenses, as well as $800,000 in a rollover IRA. If you leave the money there, it will grow to nearly $1.1 million by the time you start taking RMDs, assuming 5% annual returns, says Andrew Sloan, a financial adviser in Louisville.

If you convert $50,000 a year to a Roth for eight years instead, paying $7,500 in income taxes each time, you can stay in the 15% bracket. But you will end up paying less in taxes when RMDs begin, since your IRA balance will be only $675,000. Meanwhile, you will have $475,000 in the Roth. Another benefit: Since Roth IRAs aren’t subject to RMDs, you can pass on more of your IRAs to your heirs.

3. Plot Your Exit from Employer Stock

Some 401(k) investors, often those with large balances, hold company stock. Across all plans, 9% of 401(k) assets were in employer shares at the end of 2013, Vanguard data show—for 9% of participants, that stock accounts for more than 20% of their plan.

Unloading those shares at retirement will reduce the risk in your portfolio. Plus, that sale may cut your tax bill. That’s because of a tax rule called net unrealized appreciation (NUA), which is the difference between the price you paid for the stock and its market value.

Say you bought 5,000 shares of company stock in your 401(k) at $20 a share, for a total price of $100,000. Five years later the shares are worth $50, or $250,000 in total. That gives you a cost of $100,000, and an NUA of $150,000. At retirement, you could simply roll that stock into an IRA. But to save on taxes, your best move may be to stash it in a taxable account while investing the balance of your plan in an IRA, says Jeffrey Levine, a CPA at IRAhelp.com.

All rollover IRA withdrawals will be taxed at your income tax rate, which can be as high as 39.6%. When you take company stock out of your 401(k), though, you owe income tax only on the original purchase price. Then, when you sell, you’ll owe long-term capital gains taxes of no more than 20% on the NUA.

Of course, these complex strategies may call for an accountant or financial adviser. But after decades of careful saving, you don’t want to jeopardize your million-dollar 401(k) with a bad tax move.

MONEY Taxes

Why Obamacare Has Made Tax Filing an Even Bigger Headache This Year

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Getty Images

This is the first year that health reform crops up on your tax return. And a new study finds that many Americans who got help with health insurance premiums in 2014 now owe the IRS money.

This tax season, for the first time since the health law passed five years ago, consumers are facing its financial consequences. Whether they owe a penalty for not having health insurance or have to reconcile how much they got in premium tax credits against their incomes, many people have to contend with new tax forms and calculations. Experts say the worst may be yet to come.

When Christa Avampato, 39, bought a silver plan on the New York health insurance exchange last year, she was surprised and pleased to learn that she qualified for a $177 premium tax credit that is available to people with incomes between 100% and 400% of the federal poverty level. The tax credit, which was sent directly to her insurer every month, reduced the monthly payment for her $400 plan to $223.

A big check from a client at the end of last year pushed the self-employed consultant and content creator’s income higher than she had estimated. When she filed her income taxes earlier this month she got the bad news: She must repay $750 of the tax credit she’d received.

Avampato paid the bill out of her savings. Since her higher income meant she also owed more money on her federal and state income taxes, repaying the tax credit was “just rubbing salt in the wound,” Avampato says. But she’s not complaining. The tax credit made her coverage much more affordable. Going forward, she says she’ll just keep in mind that repayment is a possibility.

It’s hard to hit the income estimate on the nose, and changes in family status can also throw off the annual household income estimate on which the premium tax credit amount is based.

Like Avampato, half of people who received premium tax credits would have to repay some portion of the amount, according to estimates by The Kaiser Family Foundation. Forty-five percent would get a refund, according to the KFF analysis. The average repayment and the average refund would both be a little under $800. (KHN is an editorially independent program of the foundation.)

Tax preparer H&R Block has also looked at the issue. It reported that 52% of people who enrolled in coverage on the exchanges had to repay an average of $530 in premium tax credits, according to an analysis of the first six weeks of returns filed through tax preparer. About a third of marketplace enrollees got a tax credit refund of $365 on average, according to H&R Block.

The amount that people have to repay is capped based on their income. Still, someone earning 200% of the poverty level ($22,980) could owe several hundred dollars, says Karen Pollitz, a senior fellow at the Kaiser Family Foundation. People whose income tops 400% of poverty ($45,960 for an individual) have to pay the entire premium tax credit back.

Experts say the message for taxpayers is clear: if your income or family status changes, go back to the marketplace now and as necessary throughout the year to adjust them so you can minimize repayment issues when your 2015 taxes are due.

Many people are learning about what the health law requires and how it affects them for the first time when they come in to file their taxes, says Tara Straw, a health policy analyst at the Center on Budget and Policy Priorities. For the past 10 years, Straw has managed a Volunteer Income Tax Assistance site in the District of Columbia as part of an Internal Revenue Service program that provides free tax preparation services for lower income people.

Some of the recently initiated owe a penalty for not having health insurance. For 2014, the penalty is the greater of $95 or 1% of income. The H&R Block analysis found that the average penalty people paid for not having insurance was $172. Consumers who learn they owe a penalty when they file their 2014 taxes can qualify for a special enrollment period to buy 2015 coverage if they haven’t already done so. That would protect them against a penalty on their next return.

People may be able to avoid the penalty by qualifying for an exemption. Tax preparers rely on software to help them complete people’s returns, including the forms used to reconcile premium tax credits and pay the penalty for not having insurance or apply for an exemption from the requirement. For the most part, the software is up to the task, Straw says, but it comes up short with some of the more complicated calculations.

Case in point: applying for the exemption from the health insurance requirement because coverage is unaffordable. Under the health law, if the minimum amount people would have to pay for employer coverage or a bronze level health plan is more than 8% of household income they don’t have to buy insurance. That situation is likely to be one of the most common reasons for claiming an exemption.

But to figure out whether someone qualifies, the software would have to incorporate details such as the cost of the second lowest cost silver plan (to calculate how much someone could receive in premium tax credits) and the lowest cost bronze plan in someone’s area. The software can’t do that, so tax preparers must complete the information by hand.

“That one in particular has been vexing,” says Straw.

The gnarliest filing challenges may yet come from people with complicated situations, such as those who had errors in the IRS form 1095A that reported how much they received in premium tax credits, experts say.

Take the example of a couple with a 20-year-old son living at home who bought a family policy on the exchange. If midway through the year the son gets a job and is no longer his parents’ dependent, the family’s premium tax credit calculation will be off. The family needs to work together to figure out the optimal way to divide the credit already received between the two tax returns. The goal is to maximize the benefit to the family and minimize any tax credit repayment they may face.

“A lot of tax software is just not designed for that kind of trial and error,” says Straw.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

MONEY Credit

Woman Is Sent 300 Credit Reports By Accident

overstuffed mailbox
Christie & Cole Studio Inc.—iStock

A woman reportedly requested her free credit report and got 300 strangers' reports instead.

A woman in Maine came home to a funny sight earlier in March when her mailbox was stuffed with more than 300 envelopes, each containing a credit report.

Here’s what’s not so funny: None of them belonged to her.

Katie Manning contacted a local news station (WGME 13 TV in Portland, Maine) after she realized she had all of these strangers’ sensitive information, and the station put her in touch with the state Bureau of Consumer Credit Protection.

Manning had requested her credit report from Equifax earlier in the month, she told WGME, but she received others’ reports instead of hers.

“I’m not supposed to have this information, this is unbelievable, someone has messed up,” Manning told WGME.

Equifax did not immediately respond to requests for comment from Credit.com, though Equifax’s Vice President of Corporate Communications Tim Klein told WGME, “This is a high priority. Obviously this is a serious situation. I’m going to get our security and forensics teams involved.”

William Lund, superintendent for the Maine Bureau of Consumer Credit Protection, told Credit.com the bureau is sending the credit reports to Equifax attorneys so the agency can complete its investigation. Lund said his primary concern is that those affected by the breach — mostly consumers along the East Coast — are notified.

“I’ve been in touch both with in-state attorneys here and out-of-state firms for the company, and they are working hard to figure out what happened and to prevent it from happening again,” Lund said. “They have told me that they have identified the issue and that there is no evidence of an ongoing issue with this particular situation.”

Credit reports contain all the personal information someone would need to steal your identity and commit credit fraud — they include Social Security numbers, names, birth dates, addresses and employers, among various credit data.

Regularly reviewing your credit reports is one of the best ways to find out if you’ve been a victim of fraud (looking at your credit scores is another), which makes this situation a bit ironic, considering how this error could have resulted in a lot of fraud.

Despite the seriousness of what happened, it’s still important to request your free annual credit reports as part of your regular financial practices. In between those checkups, you can use your credit scores as fraud indicators, looking at the same scores periodically to see if there has been a sudden change, which may be a sign of fraud. You can see two of your credit scores for free every 30 days on Credit.com.

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This article originally appeared on Credit.com.

MONEY Taxes

How To Make the Most of the Single Best College Tax Break

College campus
Andersen Ross—Getty Images This scene can save you money on your taxes.

Nearly 2 million Americans pay too much in taxes because of confusion over education benefits. Here's how to avoid that mistake.

Back in January President Obama proposed consolidating many overlapping education tax benefits, a plan that appears long dead. Too bad, since millions of taxpayers make mistakes writing off education expenses on their 1040s and pay hundreds in unnecessary taxes as a result.

A 2012 Government Accountability Office report found that education tax breaks were so complicated and poorly understood that 1.5 million families who were eligible for one failed to claim it and overpaid their taxes by more than $450 a year. Another 275,000 families were so confused that they opted for the wrong benefit and overpaid by an average of $284.

Here’s how to get college tax breaks right on this year’s return and beyond.

Stick With The Winner

In any given year, you’re allowed to claim only one of these three tuition tax benefits: The tuition and fees deduction, the lifetime learning credit or the American Opportunity Tax Credit (AOTC).

Don’t be distracted by all the options. The AOTC is the most lucrative and broadest education tax benefit available, and it should be your first choice, says Gary Carpenter, a CPA who is executive director of the National College Advocacy Group.

The AOTC, available to a student for up to four years, cuts your federal taxes dollar-for-dollar. You can take the credit for up to $2,000 in tuition or fees, and 25% of another $2,000 of qualified expenses, for a total max of $2,500. Married couples with adjusted gross incomes of up to $180,000, or $90,000 for single filers, are eligible to claim the AOTC.

Even if you owe no federal income taxes, you can get a refund check for up to $1,000 by claiming the AOTC.

Maximize Your Benefit

Now that you know that the AOTC is tops, you need to know how to get the full benefit on the maximum $4,000 in eligible expenses, which can be complicated in these four situations.

1. You have a super generous financial aid package: Did your little genius get such a big scholarship that you’ll pay less than $4,000 for tuition, fees, and books? Once you’re done celebrating, call the scholarship provider and ask if you can use some of that money to pay for room and board instead, advises Alison Flores, principal tax research analyst with The Tax Institute at H&R Block.

This may seem odd, since scholarships are tax-free only if you use the money for tuition and fees. But by shifting some of the aid so that you pay $4,000 worth of tuition, fees, or book costs out of your own pocket, you can get the maximum benefit from the AOTC. That $2,500 credit typically outweighs whatever additional taxes you’d have to pay on a re-allocated scholarship, says Flores.

2. Your tuition payments are low: One way students attending low-tuition colleges can make sure they get the full advantage of the AOTC is by paying a full academic year’s tuition by Dec. 31, instead of waiting until the start of the second semester in January to pay that semester’s bills.

3. You’ve saved in a 529 plan: You can claim the AOTC only for tuition that you paid for with taxable savings, notes the NCAG’s Carpenter. When you take money from a 529 college savings plan to pay your tuition, that withdrawal is tax-free. So there’s no double dipping. You can’t also claim the AOTC for those funds.

Assuming you don’t have enough in the 529 plan to pay the entire annual tuition, room and board bill (and who does?), earmark the 529 withdrawal for room and board, and pay at least $4,000 in tuition with taxable savings.

4. You’re taking out large loans. If you’re using loans to cover tuition, you can use the money you borrowed to claim the AOTC. If you and your spouse report a joint income of less than $160,000, you can also deduct the interest on your payments.

Parents can deduct the interest on loans they take out for their children’s education, but not on payments they voluntarily make on the student’s loans, Flores notes.

Take Care With the Paperwork

Once you’ve done everything else right, don’t lose a tax break at filing time. For that, you need to keep good records.

Colleges typically don’t report all the information you need to claim all of your education tax breaks on the 1098-T forms they send out each year. They usually provide only the amount they’ve billed you, explains Anne Gross, vice president of regulatory affairs for the National Association of College and University Business Officers (NACUBO).

To get all of the tax goodies, you’ll have to show the IRS how much you paid, and where the money came from. Some colleges will allow you to gather that information from their online accounts portal, Gross says. But as a backup, it’s smart to keep your own records.

Shift Gears as a Super Senior or Grad Student

Once you’ve used up a student’s four years of eligibility for the AOTC, try for some of the smaller, more limited education tax breaks. If you earn less than $128,000 as a married couple, switch to claiming the lifetime learning credit starting in year five of your dependent student’s higher education. There is no limit to the number of years you can receive this credit of up to $2,000.

If you make between $128,000 and $160,000, you can write off up to $4,000 from your income using the tuition and fees deduction.

Keep Cutting Your Taxes Post-Graduation

When school is finally over, the tax breaks don’t end. Singles earning less than $80,000 and couples earning less than $160,000 can deduct up to $2,500 a year in student loan interest. Parents with federal PLUS loans can claim their interest payments on this deduction. But parents who are voluntarily making payments on their children’s student loans cannot claim that interest.

Catch a Break When You Save Too

Finally, President Obama’s plan to eliminate tax-free withdrawals from 529 college savings plan has been squashed as well, preserving the tax benefits on the money you’ve set aside for your, your children’s, or your grandchildren’s college costs. Although contributions to a 529 are not deductible on your federal income tax return, the earnings grow tax-free. And as long as you spend the money on qualified college expenses, withdrawals are tax-free as well.

What’s more, 32 states give you a break on your state taxes for your 529 contributions (or, in New Jersey’s case, a scholarship). These benefits are worth exploiting: A Morningstar report found that, on average, they equate to a first-year boost on your investment returns of 6%. Check this map to see if you live in a state that rewards college savers.

MONEY College

The 25 Public Colleges Where Students Graduate The Fastest

Final exercises, University of Virginia
Dan Addison—U.Va. Public Affairs At the University of Virginia, 86% of freshman graduation in four years.

The schools that will help you avoid the wasted time and added expense of spending a fifth year (or more) in the classroom.

One casualty of the ongoing budget problems and overcrowding at public colleges is speed. The average time public college students take to earn what used to be called a “four-year degree” is currently about 4.6 years.

In fact, only one third of public college students earn their bachelor’s degree in four years, according to the U.S. Department of Education.

And that means the average in-state public college student is paying for an additional semester of tuition, room, board, and books—which is currently running about $12,000, according to College Board data.

Many private college students need more than four years to graduate as well, but on average, fully 53% of private college students earn their bachelors’ degree on time, 20 percentage points higher than the public college rate. (For the private colleges that graduate students the fastest, see our list of the top 50.)

One major cause of students’ slower progress at public colleges is underfunding. At some colleges, such as some low-cost California State University campuses, students complain they can’t get into the majors or classes they need to complete their degrees. At several CSU campuses, such as San Jose State University, students have almost no chance to finish on time.

But students also slow themselves down, research shows. Generally, schools that accept students with less-than-perfect high school records—such as open access public colleges—tend to have low four-year graduation rates. Many struggling students have to take remedial classes before they can handle college-level work, which adds a semester or two to their degree.

And students who change majors late in their college career may have to take additional requirements, which can force them to spend an extra semester or two at school. (You can read more about the simple strategies to help you graduate on time here.

These 25 public colleges have the best records of graduating students on time. They are ranked by four-year graduation rates in the table below, which also lists Money’s best college values ranking and our estimate of the average cost of a degree for an in-state student, after college scholarships and grants are subtracted.

College state Money ranking % of freshmen who earn a bachelor’s in 4 years Estimated average net cost of a degree for the class of 2019
1. University of Virginia-Main Campus VA 16 86% $96,963
2. College of William and Mary VA 60 83% $99,106
3. University of North Carolina at Chapel Hill NC 40 81% $86,637
4. University of Michigan-Ann Arbor MI 22 76% $97,359
5. University of California-Berkeley CA 13 72% $130,629
6. The College of New Jersey NJ 53 72% $131,357
7. St Mary’s College of Maryland MD 319 71% $123,480
8. University of California-Los Angeles CA 31 69% $130,477
9. SUNY at Binghamton NY 162 69% $102,165
10. University of California-Irvine CA 32 68% $126,546
11. University of California-Santa Barbara CA 95 68% $135,233
12. University of Connecticut CT 120 68% $105,084
13. University of Delaware DE 66 68% $101,911
14. University of Illinois at Urbana-Champaign IL 76 68% $122,217
15. Miami University-Oxford OH 144 68% $128,987
16. University of Maryland-College Park MD 68 66% $102,069
17. SUNY College at Geneseo NY 359 66% $98,680
18. University of Mary Washington VA 107 66% $101,952
19. University of Florida FL 28 65% $89,572
20. Pennsylvania State University-Main Campus PA 177 65% $147,090
21. James Madison University VA 53 65% $101,193
22. University of Vermont VT 300 65% $96,549
23. University of New Hampshire-Main Campus NH 261 64% $121,657
24. University of Pittsburgh-Pittsburgh Campus PA 319 64% $133,585
25. Citadel Military College of South Carolina SC 114 62% $98,671

Sources: U.S. Department of Education, Money calculations

MONEY College

4 Ways To Spend One Less Semester in College—and Save

Students walking on El Paseo de Cesar Chavez street on San Jose State University campus, California
Ellen Isaacs—Alamy San Jose State University, where the average student takes more than five years to graduate.

The average college graduate takes an extra semester to earn a degree. Here's how you can finish up in four years and avoid those additional costs.

In all the paperwork sent by colleges in those fat acceptance envelopes mailed out in the spring, one distressing fact is typically being left out: You’re probably going to pay at least one extra semester’s worth of tuition.

If past trends continue, only about 40% of the freshmen who start at a four-year college this fall will earn their bachelor’s in four years, according to the U.S. Department of Education.

Another 15% will take five years. A few more stragglers will need six years or more, while 41% percent of freshmen won’t ever earn a bachelor’s degree. Overall, the average student who does graduate takes 4.4 years to earn a degree.

That means the typical student is paying for one extra semester of school, since about two-thirds of the students who need extra time are taking courses full-time and paying full tuition all the way through, according to analyses by Judith Scott-Clayton, an economist at Teachers’ College, Columbia University.

But Scott-Clayton and other experts say there are four things you can do to reduce the odds that you’ll have to pay for more than four years of college.

1. Bank credits in high school. Peter Van Buskirk, a former dean of admissions at Franklin & Marshall who now runs the Best College Fit private consulting firm, urges students to earn early college credits and perhaps place out of some requirements by taking advanced placement tests in high school. Once you’ve exhausted all your opportunities at your high school, another option is to enroll in other college credit courses, such as community college or online classes.

2. Take a full load at college. Part of the problem is that the federal government classifies 12 credits a semester and above as “full-time attendance,” says Scott-Clayton. So lots of students think taking 12 credits is sufficient.

But at that rate you’ll need 10 semesters (five years) to earn the standard 120-credit requirement for a bachelor’s. Your first college math lesson: The only way to earn 120 credits in four years is to earn at least 30 per year, which means 15 per semester.

4. Test your major early. Take courses and internships related to your major in freshman and sophomore years so you can quickly find out if you want to switch.

Switching majors in junior and senior year is a common cause of graduation delays, says Jim Briggs, a founder of Reducing College Costs, a private financial aid consulting firm. “If you change your major and there are prerequisites that are only offered once in a year, you might be out of luck,” Briggs explains.

4. Find a college that’s on your side. Choose a college that has a track record of helping students finish on time. Students at public colleges that have been hit hard by budget cuts and overcrowding, such as many campuses of the California State University system, often can’t get into the courses they need to finish their degree. At several CSU campuses, such as San Jose State University, students have almost no chance of finishing on time. Only 8% of full-time entering SJSU freshmen earn their degrees in four years, and the average student needs slightly more than five years.

But even some expensive private colleges, such as the Brooklyn campus of Long Island University, report very low four-year graduation rates.

You can look up your college’s four-year graduation rate on the U.S. Department of Education’s College Navigator website. And check out Money’s list of the 50 private colleges and 25 public colleges most likely to get you to graduation in four years.

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