Admittedly, after re-reading the past few articles about how to pay for college tuition, I felt that students and parents may walk away with the feeling that college is out of reach financially. Some students and parents might think they won't be eligible for financial aid because their family income is too high. Alternately, other students and parents may believe that their family is too poor and that financial aid won't make a difference. However, a little homework (Cora: "MORE homework?") will show that financial aid for college is in reach for many students, provided they've proven their merit for acceptance.

The process to determine a student's eligibility for financial aid is called a "need analysis." In this analysis the student's and his or her parent's income and asset information is examined to determine the family's ability to contribute toward tuition. First, you need to determine the cost of tuition, including books, living expenses, and transportation, etc. Then, you subtract the EFC (Expected Family Contribution: from that cost for one (1) academic year. The remainder is the amount of financial need.

To estimate costs, you need to determine if the college of choice runs on quarters or semesters, as this time frame will help you determine supply costs. Trust me when I say that books alone per quarter or semester will run at least $400, and the difference of adding or subtracting that amount may give you the edge you need for financial aid.

Let's say that the private college of your choice demands $18,000 per year in tuition, that books will cost $1,200 per year (quarterly system, you take the summer off), and that other odds and ends like notebooks, etc. will come to $500 per year. If the student doesn't live in a dorm, living expenses (rent, phone, utilities, etc.) will come to about $14, 400 per year, but only if shared with another person. Transportation costs will depend upon whether the student uses an automobile or public transportation. For the sake of building up numbers, let's use an automobile and place the cost of gas and maintenance at $1,500 per year.

The total cost of attendance based on the figures above comes to $35,600 per year, not including food. Now, if the student remains a dependent on his or her parent's income tax, then the EFC will equal the income and assets from both parents and student. Say that the student saved $3,000 in a portfolio, but will lose that job when he attends college because college is out of state (which, by the way, will increase tuition costs). Say that the parents maintain assets worth about $15,000 (no home ownership) and that their combined income is $60,000 per year. The total in this case equals $78,000 before taxes. If that figure, which represents the EFC, is subtracted from $35,600, which is the total cost for one year of college, the financial need for this student comes to -$42,400, or a minus in the needs analysis.

In other words, that student's chances for financial aid seem slim to none, because that $42,400 total is more than enough to pay for one year of college. Accordingly, you may wonder why parental expenses aren't deducted from the financial asset. I'll ease your mind with the fact that financial institutions utilize a formula that knocks that parental asset/income figure down. For instance, in the scenario above the parents might be expected to contribute only $8,000 to the college yearly expense. Plus, the student may not be expected to contribute at all. When the lower figure of $8,000 is deducted from the yearly college expense of $35,400, then the needs estimate comes to $27,400.

While the $27,400 figure is definitely an improvement over -$42,400, this solution does not guarantee that Joe or Judy will obtain needed funding. The colleges of choice will determine the students' needs and eligibilities and will send award letters that lists the kinds and amounts of aid that students will receive when all is said and done. If the aid isn't sufficient, then loans are another alternative. Loans are offered through the colleges, through the federal government, and through banks and other financial institutions.

A seemingly obvious solution to this college tuition problem is to set Joe or Joanna free from dependency status. As an independent person filing taxes, the student has a much better chance to obtain financial aid because their income would most likely be lower than the sum total income from two working parents. While this action may cost the parents a dependent on the tax form, the price to pay is much less than a college education. An independent student, though, must be 24 years of age or older, so that cuts out the student who wants to attend undergraduate school immediately after high school.

But, a marriage can make that 18-year-old independent. Or, the student could look at a military tour before college, become an orphan or ward of the court (involuntarily, of course), or have legal dependents other than a spouse. If none of those choices for independence appeal to the parent or student, another alternative is to time college careers so that two children are in college at the same time. This latter choice could lower family contributions anywhere from 30% - 50%.

Other choices to save for that college tuition include alternatives that I wrote about a little over a year ago. You can read about 529 Plans, funding problems and possibilities, and how college aid affects taxes here at BUYandHOLD. Although these articles were written in 2004, most of the information contained in these writings still holds water. However, there are some other tidbits that I didn't include in these articles. I'll cover that information next week, and then look at changes in the tax laws for student aid.

Until Then,
Linda Goin