The latest source of financial help for college-going families does not come from the traditional financial-aid programs, but rather through the Internal Revenue Service in the form of tax credits given to families who pay tuition and fees for their children. And this new help is substantial. It represents the greatest increase in federal support to help families pay for higher education in 25 years!

The following programs, adopted by Congress in August, 1997 as part of the "budget balancing" law, may be utilized by families to help pay college costs.

The Hope Scholarship is actually a tuition tax credit designed to help families pay tuition and required fees for higher education. The law allows taxpayers to take a non-refundable tax credit for up to 100 percent of the first $1,000 in tuition and required fees paid, and a 50 percent tax credit for the next $1,000, for a total maximum tax credit of $1,500. A tax credit represents a direct subtraction from the amount of tax owed by the taxpayer. These credits cover payments of tuition and required fees made after January 1, 1998 but are phased out for single tax filers with an adjusted gross income of $40,000 to $50,000 and for joint filers with adjusted gross incomes of $80,000 to $100,000.

For families of students in junior and senior year, or graduate school (as well as adults returning to school) a tuition tax credit is allowed, equal to 20 percent of the first $5,000 paid in tuition and fees, or $1,000. This credit begins with tuition and fees, paid after July 1, 1998, but benefits are phased out at the same income levels as for the Hope Scholarship.

Interest paid on the first 60 months of student loans will now be considered a tax deduction. This is an "above the line" deduction, which means the taxpayer does need to "itemize" to claim the benefit. The deduction is phased in beginning with $1,000 in 1998, and going to $1,500 in 1999, $2,000 in 2000, and $2,500 in 2001. The benefit is phased out for single tax filers with adjusted gross incomes of $40,000 to $55,000, and for joint tax filers with adjusted gross incomes of $60,000 to $75,000.

For funds withdrawn from a traditional I.R.A. for expenses of higher education (including graduate school), the 10 percent penalty for early withdrawal has been eliminated as of January 1, 1998.

Families are allowed to establish an account to be used exclusively for higher education expenses (including tuition and fees, books, supplies and some room and board expenses) for individual children under the age of 18. Although the contributions must be made "after taxes," earnings accumulate tax free and no taxes are paid on withdrawals, provided they are used for higher education expenses. The benefit is phased out for single filers with adjusted gross incomes between $95,000 and $100,000, and for joint filers with adjusted gross incomes of $150,000 to $160,000.

While these programs will help many families substantially, most students will still have to rely on the traditional financial aid programs for most of their college expenses. What follows is an outline of how a family might find help from these programs.