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Easing the Worry of College Tuition

More Than 80% of Students Qualify for Assistance, but Parents Must Plan Carefully to Successfully Play the Aid Game


With a yearly price tag of $30,000 for private colleges and up to $15,000 for public universities, there is no way for many families to cover the cost with savings.

So how can people actually afford to send their children to college?

That ugly question pops up in the minds of most parents as the dinner table talk shifts to the array of college choices facing their bright teenagers.

A recent survey showed that the rising cost of college was one of parents' top worries, second only to their children using illegal drugs.

Yet experts caution that students and parents need not fall victim to sticker shock--recoiling in horror over the rising costs of tuition, fees, books, room and board.

About 81% of students qualify for some sort of help with college bills. Even some families with six-figure incomes can get need-based aid, including federally subsidized loans and a variety of tax breaks.

So don't automatically dismiss the notion of financial aid. Eligibility varies widely with circumstances, such as if the family faces the steep burden of private college tuition, has a couple of children in college at the same time or has separated parents who maintain different households.

Experts recommend performing a needs analysis by filling out federal forms, checking with a financial aid advisor or running the numbers through one of a smattering of Web sites that offer such financial calculators. (See Online Help in the box at bottom.)

The most important thing, experts say, is to plan ahead.

But even if you didn't open a college savings account when your budding collegian was in diapers, there are steps you can take to play the student aid game.

Maximizing Your Eligibility

Many of the strategies involve positioning your finances to maximize your family's eligibility for aid. They tend to fall into two categories--sheltering assets and reducing income.

That's not to say hiding assets or underreporting income.

Such cheating is illegal, and your chances of getting caught are at an all-time high as colleges and the U.S. Department of Education crack down on violators Congress just gave the department the authority to compare financial aid information with federal tax returns--without your written permission.

"We're doing more things to check, and the rules are tighter,' says Maureen McLaughlin deputy assistant education secretary.

Congress loves to tinker with the rules, so some of these strategies may not work in future years. But, for now, here are ways to position your finances.

Reducing Income: It's best to get started, financial planners say, when your child is in his or her junior year in high school. Make the changes by Dec. 31 of that year.

That's the end of the tax year, or base year, that will be used to calculate how much you can afford to contribute to the first year of college expenses.

If at all possible, try to reduce parental income during the year. That's not to say quit your job just to improve your child's chances for financial aid. But there are other things you can do.

Try to avoid selling any stock or bonds during the base yea because any capital gains you incur will be treated like income. So if you must sell stocks to help put your child through college, it's better to do that before the junior year in high school. Another option is to wait until after the last financial aid application has been filed, in the junior year of college.

If you have any losers in your stock portfolio or other had in investments, you might consider selling them to offset other capital gains from the year's dividends.

The federal formula is based on the adjusted gross income as reported on your federal tax return. So any strategies that re reduce that figure will also help you maximize your eligibility for federal aid.

Other ways to minimize parental income, financial planners say, are postponing any bonuses until after the base year, taking an unpaid leave of absence. And family-owned businesses can reduce the salaries of family members during the base year.

Don't despair if you miss the Dec. 31 deadline or your child already a high school senior. What you do will affect a eligibility for the sophomore ye. in college. You'll be applying for financial aid each year.

Sheltering Assets: One common pitfall is opening a college savings account in your child's name, said Kalman A. Chany, author of "Paying for College Without Going Broke," published by Random House.

You may get a tax break, Chany said, but you also could end up forfeiting any chance qualifying for financial aid.

Why? Because when a school calculates how much a family should contribute to college costs, it expects that 35% savings in a child's name will go to meet educational expenses. Yet the expectation, under the federal formula, is that only 5.65% of parental assets should go to pay for college.

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