Get your fair share: when it comes to affording a higher education, you should leave no stone unturned. Take advantage of all aid sources—federal, state, college, and private

Careers and Colleges, Nov-Dec, 2005 by Don Rauf

Students who are determined to pay less for college don't just fill out their financial aid form, sit back, and hope for the best. They come up with an organized plan to make sure they explore all the aid that may be available to them. They know that diverse financial aid packages consist of funding from four major sources--the federal government, their state, their college, and private scholarships. And they don't forget that old saying: every little bit helps.

You can make sure that you don't miss out on college cash, too. Review the basics of the four major financial aid sources for undergrads, then read our profiles of students who tell exactly how they have paid for college. As their stories show, a higher education may not be cheap, but if you take an active role in the financial aid process, you can afford it.

1, Federal Government

Uncle Sam towers over all sources of aid, providing about $95 billion in funding. When you send in your Free Application for Federal Student Aid, or FAFSA (see page 28), you will find out if you qualify for these programs:

Federal Pell Grants. These grants go to students demonstrating significant need, typically from families with incomes under $30,000. Award amounts are guaranteed, and the current maximum is $4,050.

Federal Supplemental Educational Opportunity Grants (SEOGs). Ranging from $100 to $4,000 a year, these awards are also for undergraduates with exceptional need. Unlike Pell Grants, this program does not guarantee an award if you qualify--it depends on the availability of funds provided to each school.

Federal Work-Study. This program offers aid in the form of jobs paying at least minimum wage to undergraduates with financial need. The average award is about $1,800.

Federal Perkins Loans. These low-interest (5%) loans allow undergraduates with exceptional financial need to borrow up to $4,000 a year. The total amount borrowed during college cannot exceed $20,000.

Federal Stafford Loans. The Stafford is the government's major loan program. With a variable interest rate that can never exceed 8.25%, these loans offer up to $2,625 for freshmen, $3,500 for sophomores, and $5,500 for juniors and seniors. Although the interest rate while you're in school is still low (4.7%), it's gone up about 2% over last year. You can borrow even more if you're considered financially independent of your parents. (See the definition of independent in our FAFSA article on page 28.)

There are two types of Stafford loans--subsidized and unsubsidized. Subsidized loans are awarded based on need, and you are not charged interest while you're in school or in deferment (an official time when you are able to delay repayment for example, if you're unemployed). Repayment typically begins six months after you graduate, leave school, or drop below half-time status. Unsubsidized loans are available regardless of need. However, with these loans, you're responsible for the interest from the day you receive the loan until it is repaid.

Federal PLUS Loans. This non-need-based program lets parents borrow for each dependent child who is enrolled at least half time. PLUS provides an amount no more than the cost of tuition, room and board, etc., minus the amount of aid already received. First payments on these loans must be made 60 days after the final disbursement. The interest rate is currently about 6%.

In the past, you could only take out Stafford and PLUS loans through a private lender, but now you can take out a direct loan if you're attending one of more than 1,000 schools that participate in the Federal Direct Student Loan Program. If you take out a loan under this plan, the U.S. Treasury is your lender--not a bank. Loans through private lenders are still most prevalent. (See page 18 for more on loans.)

Tax Credits. Depending on your family's income, you or your parents may be able to benefit from special tax deductions during the years that you're in college and beyond. The Hope tax credit lets your parents claim up to $1,500 during each of your first two years of college. The Lifetime Learning Credit allows an annual maximum of $2,000 and applies to subsequent years of enrollment. Additionally, the government's student loan interest deduction allows you or your parents to deduct up to $2,500 from your taxes during each of the first five years you repay your loans after college, depending on your income. Also, the government allows penalty-free withdrawals from Individual Retirement Accounts if the money will be used to pay for college. The military offers funding for those willing to serve as well. (See page 52.)

2. State Government

When you're done researching federal resources, look closer to home. Contact your state's department of education and ask for literature on grants, tuition assistance, fee reductions, and loans. You may have to fill out additional financial aid forms, but most states currently rely on the FAFSA. Many state funding programs offer financial incentives to keep students--especially top ones--within their borders. In Northeast Ohio, for example, 15 state and private colleges have banded together with local corporations to create a program called College 360 (www.college360.org), which is trying to discourage "brain drain" from the area. In addition, reciprocal arrangements between states often permit students to receive discounted tuition in other, usually nearby states. Although many programs are need-based, several consider academic, military, or minority status. For a complete list of state higher education agencies, visit the Education Resource Organizations Directory (www.ed.gov/ Programs/EROD/index.html).