There are four ways or methods that the majority of parents and students use to pay the rising cost of college. The first two come directly from your pocket, while the last two require diligence and perseverance to capture.

Method 1: Savings

Since the early 1980′s, the United States economy has experienced tremendous growth and prosperity. The population enjoyed an ever increasing zeal to buy and invest, yet at the same time, savings lagged. The United States now ranks the lowest among industrialized nations in savings. The average savings rate is now about 0.5% of annual income. Due to this, most families don’t have the savings to cover even one year of college expenses.

If there is any real savings occurring, it is for retirement. Our financial advisers, investment bankers, and even our favorite news channel constantly reminds us about the importance of saving for retirement. Saving for college seems to have become a subject of minor importance.

As the emphasis has been on retirement, many families don’t start to think about how they will pay for college until their child reaches their junior or senior year in high school. By then, it is too late to be able to save enough for college. For most people, paying for college with savings is not the answer.

Method 2: Income

If you don’t have enough in savings to cover the cost of college, the next place most people look is to their income. The cost of attendance at a state college or university for in-state has now reached $8,000 to $20,000 for a year! Over a ten month collegiate year, this amounts to an average monthly payment of $800 to $2,000.

Most parents do not have that much left to send to the colleges. What’s worse, is not every school has a monthly payment plan. Many colleges want their money in chucks at the beginning of each semester, usually in August and in January. Check with each college while your student is still in the application process to determine the colleges requirements. Use the schools payment rules to help you choose which schools are most affordable.

Method 3: Grants and Scholarships

There are four main sources of grants and scholarships. As a whole, 50% come from the Federal Government, 19% from the State Governments, 30% from Colleges, 1% from Private Sources. For the academic year 2008-2009, these sources set aside $148 Billion dollars for undergraduates.

The Federal scholarships and grants are composed of six Need-based programs: Pell, FSEOG, Federal Work-Study, ACG, SMART, and TEACH. There are also two Merit-based programs: LEAP and the Robert C. Byrd Honors Scholarship Grants.

State Scholarship programs vary by each state. Some states like Georgia with the HOPE Scholarship covers all of the college’s tuition, but it is merit-based and each student must maintain a 3.0 GPA or looses eligibility. Other states only provide a $250 grant per student. The best source for state scholarships is at collegescholarships.org.

Colleges and Universities provide most of their grant and scholarship money from their endowment funds. The state college systems receive most of their funding from the state. In turn, most student funding is limited.

Private colleges and universities are obviously funded by student tuition and the funds raised and donated by their graduates. Therefore, their endowment funds can be enormous. Even though these schools tend to have higher costs of attendance, due to the size of their endowment funds, they can provide major discounts to students that show promise. Some of these private colleges will even pay your entire cost if your Expected Family Contribution (EFC) is zero.

There are 1.5 million private scholarships available each year. In 2008-2009, these provided funds totaling about $1.5 Billion Dollars. Averaged out, this comes to roughly $1,000 each, if every scholarship was used. Most of the awards given are usually less than $1,500. Some can be as large as $20,000 per year for four years. The competition for these private awards is fierce though, so don’t plan on having your entire education paid for with just private scholarships.

Method 4: Loans

Generally by the time parents consider this method, they have concluded that either their assets and savings are about to be greatly diminished or the student will be loaded down with debt at graduation. With the crash in lending and the economic downturn, 32 of the 35 student loans companies have gone out of business. Now the Federal Government has decided to become the chief distributor of student loans, although it will take a few years to completely transform the process.

Student Loans have been divided into two classes: subsidized and unsubsidized. With the former, the Federal Government pays the interest while the student is in school. This interest can vary from 3.4% to 6.8%. With the latter type, the student is responsible for all the interest which is fixed at 6.8%.

Often, the colleges will offer a package of loans, part subsidized, part unsubsidized, and potentially a PLUS loan for the parents. These are very much like a mortgage loan. They charge points up front and carry an interest rate of 8.5%. Lastly, the parent only have ten years to pay them in full. These loans should be avoided.

Summary:

Parents enter financial aid time hoping that the colleges will offer a great deal in grants and scholarships. For the majority of parents, this is not the case. Most pay far more out of their pockets than anticipated, or the kids have too much debt to contend with at graduation. The way around this problem is to learn how the financial aid game works. Learn the rules and strategies, so that you can position yourself for the best deal.

How to win at the game of college financial aid is not a short subject. As an introduction, I have just completed my brand new ebook which covers ten secrets that colleges don’t want you to know about the process. It is “Secrets That Colleges Don’t Want You To Know”. Download it free at Financial Aid Secrets

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