It's Never Too Late
How to Pay for School
November 05, 1997

So you haven't saved enough to pay for your kid's college? Well, if it's any consolation, you're not alone. A recent study by Sallie Mae, the country's largest source of funds for higher education, found that parents of high schoolers applying for college had saved less than half of what they needed to cover their expected expenses. What's more, one in five hadn't saved anything at all.

So what's a Foolish mom and dad to do? Well, it's never too late to get smart.

If your son or daughter is part of the high school class of 1998, you're probably knee deep in college brochures and applications right now. Any day, Junior will be taking the SAT and you'll be thinking about a second mortgage, but there are lots of other options that your family should consider that won't bankrupt you or condemn your kid to mountainous debt for the next 20 years.

Which college your child chooses and figuring out how to pay for it is kind of a chicken-and-egg conundrum. Do you pick the school first and then say you'll do anything to go there? Or do you look at how much different schools charge and let that be a guide to where to go?

There was a time (probably when you were looking at schools for yourself) that there were only two kinds of schools -- Ivy League institutions and everything else. Today most educators feel that there are really three groups of colleges. The top 50 or so universities include the Ivies, but also include schools as Duke, William and Mary, and the University of California at Berkley. Next come the state schools that may not be in the very top echelon of reputations but have solidly good programs and oftentimes top-notch specialties. The University of Maryland with its journalism department and Cal State at Northridge for deaf education come to mind. Then there are the small liberal arts colleges that many people have never heard of but offer the more personal touch -- but usually at a pretty stiff price.

What's it gonna cost?

Obviously, the "right" school is a very subjective decision. What is a dream for one student may just be a nightmare for another. But Fools analyze not only which school has the best program of study, but also which will give you the best return on investment.

According to a recent study from the College Board, a family can expect to pay $20,000 per year for a private university and $9,000 per year for a public school. Considering the good reputation of so many state schools, a case could be made that it is the rare private school that would be worth spending more than twice as much money for, especially if you haven't saved for it already.

If you're looking at spending anywhere between $9,000 and $20,000 a year for the next four years, it's going to have to come from somewhere. So how do you get it?

Paper Route

Luckily, there are many scholarship, grant, and loan programs to help you go to the school of your choice. Unfortunately, the process is something of a labyrinth and is actually the first test of your kid's intelligence and resourcefulness long before he ever steps foot in his first class.

The process begins with filling out the financial aid forms that help determine your need for assistance. Private colleges typically use the FAF form. The FAFSA (Free Application for Federal Student Aid) is used by all universities. These forms are available from your child's guidance counselor or at most public libraries. Check with the schools that you're applying to for information on which form they prefer. You can't send in the application until after Jan. 1, but they are complicated enough that you should start looking at them and gathering the needed information now.

Once you finish filling out the FAFSA, you will send it to a needs analysis department that will assess your potential contribution. They will look at things like your assets, your income, and any savings that may have been put away in your child's name. Money that has gone into retirement plans, such as a 401(k) plan, IRAs, and annuities aren't counted toward your assets.

The Grant Gig

Each school that you apply to will receive information on your ability to pay (based your financial aid form) and then offer you an aid package. Since different schools will have different costs and resources, each package will be different.

Typically, the school will start with what your family can contribute and then try and find other sources of money from federal grants (Pell or Supplemental grants), which don't have to be repaid, to loans guaranteed by the government, to offers of an on campus job. Some states also offer grants and loans to students who are in-state residents.

The trick though is to find as much money as possible that you or your child won't be required to pay back. The more scholarship and grant money you can find (these are outright gifts, they don't have to be paid back), the better off you'll be. Getting out of college with a $50,000 debt is not unheard of and can severely limit your family's and your child's options for many years to come. Many couples have had to wait until they are in their 30s to buy their first home because their school debt was so onerous they were unable to qualify for a mortgage.

For more info on sources of money for school and tips on how to make it cheaper, be sure to check out our 10 Foolish Tips for College. In the meantime, it's never too late to get smart. And investigating all of your Foolish options is a good place to start.

--Trudy Hoyden (TMF Hoyden)

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.