Apply for Financial Aid

Most students never end up having to pay for their entire college education.  What they end up paying is what is left after the college provides a packages of federal, state, and college based aid.  Financial aid makes private schools almost as good or even a better deal than in-state private schools.  Many of the most expensive schools are shifting from loans to grants, which the student doesn't have to repay.  The average net costs: $11,600 at private four-year schools; $2,200 at public four-year schools, and just $400 at community colleges.

“Many schools with higher tuition have to be competitive, so they’ll increase gift aid and scholarships, which decreases the actual net cost for students,” says John Heywood, a principal in charge of the mutual fund-company Vanguard's education markets group. “That may make the decision between Princeton and Rutgers next door easier based on what you will owe in loans.”

The first step in finding financial aid is to fill out the Free Application for Federal Student Aid (FAFSA) form from the U.S. Department of Education.

Start a Special Savings Account For College Bills

If your family does not qualify for financial aid is is a good idea to open a special savings account for your education..  One of the most popular types of account is a 529 plan.  This is a state-sponsored savings plan that allows parents to prepay tuition at a qualified institution at today's rates, or save money in a tax-deferred account to pay for college a t future tuition rats.  Many staes off a state-tax deduction on 539 plans and can reduce your tax bill by a few thousand each year.

The Coverdell Education Savings Accounts (Education IRA), is another option.  The earnings are allowed to grow tax-deferred and the distributions are tax-free.  You are only allowed to save $200 per year.

The oldest education savings plans are the UGMA (Uniform Gifts to Minors) and UTMA (Uniform Transfers to Minor Act) custodial accounts which parents set up for their children, but one disadvantage to them is that children have the legal right to the money when they turn 18, at that time they can legally cash in the account and spend in any way they wish.

Search for Scholarships and Grants

Every year millions of dollars in scholarship money go unclaimed.  They may be too restrictive or too competitive, and colleges often deduct the money won from its financial aid package.  It always make sense to apply for them if you don't think you will qualify for financial aid,  if your college offers loans instead of grants or if it is not able meet all your financial aid needs.

A good place to start your scholarship search is online, there are a number of sites with extensive databases.  Check your local library or high-school guidance counselor's office.  Many scholarships are for smaller amounts but are often less difficult to apply for than the larger more competitive scholarships.  Local and national businesses, unions, places of worship, professional associations and service organizations also offer scholarships.

Avoid scholarships that charge application fees, they are usually a scam.

Take Advantage of Tax Breaks

Tax credits can help defray the cost of educations.  Credits reduce your tax bill more than deductions.  The two most popular tax credits are the Hope Credit and the Lifetime Learning Credit.  In order to qualify for either credit, you must pay post-secondary tuition and fees for yourself or your dependent but can only claim one credit per student each tax year.  The credit can be claimed by either the parent or the student but not both.

The Hope Credit is specifically for families with children in college. It applies for the first two years of college or vocational school and can be worth up to $1,500 per student, per year.

The Lifetime Learning Credit can be used for undergraduate, graduate and professional degree courses for anyone. If you meet IRS guidelines, you can count $10,000 of your Lifetime Learning education expenses and then claim up to 20 percent of those expenses to net a maximum $2,000 credit.

Ask the Grandparents to Help Out

Grandparents can help with college expenses with out incurring a gift tax up to $11.000 ($22,000 for married couples) each year.  539 plans can  offer an accelerated gift option called "forward averaging" that allows the donor to give up to $55,000 for an individual or $110,000 for a married couple per student in a single year by giving five years worth of gifts at on time.

Another options for grandparents is to pay the tuition directly to the school on behalf of their grandchild.  By doing this the grandparent can avoid the gift tax completely.

 'Negotiate' with Your School

You can "request" that the financial-aid office re-evaluate your financial situation.  If you have had a change in circumstances or there are other issues not reflected in your financial aid request (job loss, high medical expenses) then bring this to the attention of the financial aid counselor and make sure you have copies of any relevant documents like the layoff notice or hospital bill as proof of your changed circumstances.