The best way to get financial aid

/ Source: Forbes

According to the College Board, U.S. college students and their families are paying, on average, $167 to $1,132 more for this year's tuition and fees than they did in 2003-2004. The average annual cost of a public college education, for tuition and fees, is now $11,000, while private colleges are $27,000 or more. Over the past decade, college tuition has climbed 90 percent.

The cost of a college education is heading north quickly, and many families around the United States now face a dilemma — they make too much for their kids to qualify for full scholarships to attend college, but not enough to pay for the entire cost of tuition, books, lab fees and other costs. They start eyeing the part-time student jobs at Starbucks.

In reality, however, a lot of people incorrectly assume their income is too high and they don't bother applying for financial aid. There are several options worth considering if you know where to look.

More students getting aid
Indeed, there is more financial aid than ever before. Nearly 70 percent of students attending four-year schools pay less than $8,000 for tuition and fees, according to the College Board, a not-for-profit membership association that is composed of more than 4,700 schools, colleges, universities, and other educational organizations. Students are currently receiving over $122 billion in aid each year. After grants are taken into consideration, the net price the average undergraduate pays for a college education is significantly lower than the published tuition and fees.

There are even options for a family that earns too much money to qualify for financial aid. A great option to consider is the Federal Parent Loan for Undergraduate Students (PLUS) loan program, which currently have a variable interest rate that is capped at 9 percent but is currently 4.17 percent. These loans are available regardless of income or assets, and are not based on financial aid and do not require collateral, but applicants cannot have filed for bankruptcy, defaulted on student loans in the past or have any tax liens. PLUS loans are part of a federally subsidized educational loan program that allows families with college-aged children to borrow an amount up to the entire cost of the undergraduate college education, minus the sum covered by grants, scholarships or other financial aid. PLUS Loans have flexible repayment options, giving borrowers up to ten years to repay.

Private scholarships available
There are also thousands of private scholarships that may be worth pursuing. In 2006, Wal-Mart Stores will award more than $7 million in scholarships to high-school seniors as each of the more than 3,600 Wal-Mart stores and Sam's Clubs offer two $1,000 scholarships. Selection of recipients is based on merit and financial need. Applications will be available in the stores and the deadline for applying is Feb. 1. Winners will be notified in April. All local Wal-Mart winners are automatically entered into a state competition for a chance to win an additional $4,000 scholarship for a total award of $5,000. All state winners will then be automatically entered into a national competition for a chance to win an additional $20,000. Wal-Mart also offers more than $1 million in scholarships to its employees and their children.

Another option worth considering is calling your local J.P. Morgan Chase or Washington Mutual branch to take out a home-equity loan. With interest rates still low, this is worth considering, especially since you can write off the interest when you file your taxes.

Many people wrongly believe that once the student is enrolled in a college, it is too late to apply for financial aid. But in reality, students can apply for financial aid at any time during their education. Microsoft for example, offers more than $500,000 in scholarships for students currently enrolled in a four-year undergraduate degree program who are pursuing studies in computer science and related technical disciplines. Financial aid packages that are need-based can change from year to year since students are required to re-apply every year they are in school. "If income goes way down, the financial aid is likely to go up," says Sally Donahue, Director of Financial Aid at Harvard College.

A student may not receive additional aid if he is already maxed out with regards to the federal aid he already receives or if the institution he attends does not have additional funds to offer. Also, if a family's income increases in a tax year, the student may not qualify for as much aid the following school year.

Unlike financial aid, merit-based aid, such as an athletic scholarship or academic scholarship, may hinge on the student's grade point average rather than the family's ability to pay the tuition.

Since financial aid applications are filed in January, with the aid eligibility based on the previous tax year, it is probably too late to do any financial planning strategies to improve your chances of getting more aid for 2005. But in the future, parents planning on applying for financial aid should consider using some of their savings to pay off high interest debts and loans, or put more money into assets, such as IRAs or 401(k) plans that are not included in the aid calculation.