Most information about financial aid targets low income families making less than $60,000 dollars a year. Those families have access to school-specific and government resources that make attending college incredibly affordable, often entirely free. But the current system of financial aid packages explicitly leaves middle class families behind.
Even if you make $200,000 pre-tax, spending 30+% of that money on college is financially infeasible. If you have more than one kid, as is common, the numbers become nearly impossible to manage. Given these steep odds, how are middle class families supposed to ensure that their kids have a future?
Merit-Based Scholarships
Academic Scholarships: Many colleges offer scholarships based on academic performance, standardized test scores, leadership qualities, and other talents. Once you get your acceptance letters, research your options.
Private Scholarships: Organizations, businesses, and foundations also offer scholarships based on a variety of criteria. Websites like Fastweb, Scholarships.com, and the College Board's Scholarship Search are useful for finding these opportunities. Applying for these scholarships is free and relatively easy, with no downside for being rejected.
Need-Based Financial Aid
FAFSA: The Free Application for Federal Student Aid (FAFSA) is the gateway to federal, state, and institutional financial aid. Even if you think you might not qualify, it's worth applying because schools use the FAFSA to determine eligibility for non-federal aid as well.
CSS Profile: Some institutions use the CSS Profile in addition to the FAFSA to award institutional aid. It provides a more detailed analysis of a family's financial situation. Again, filling out this profile can open doors to scholarship programs you may not have known existed.
529 Plans and Education Savings Accounts
529 Plans: These tax-advantaged savings plans are designed to encourage saving for future education costs. Money from these accounts can be used for tuition, room and board, and other qualified expenses. Typically, parents will need to contribute to a 529 plan well before their children are applying to college.
Coverdell Education Savings Accounts (ESA): These accounts also offer tax-free growth and tax-free withdrawals when the funds are used for education expenses. These are a great alternative if a 529 does not work for you or your family.
Tax Credits and Deductions
American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC): These credits can reduce the amount of tax you owe, up to a certain amount, based on qualified education expenses. This is a great way to minimize the real cost you pay for tuition.
Student Loan Interest Deduction: Allows you to deduct interest paid on student loans, potentially lowering your taxable income. Of course, this requires that you've taken on student loans in the first place.
Federal Student Loans
Direct Subsidized Loans and Direct Unsubsidized Loans: These loans offer relatively low interest rates and flexible repayment options. Subsidized loans have the interest paid by the government while the student is in school at least half-time, during the grace period, and during deferment periods. Given recent student loan repayment freezes and restarts, plus relatively high interest rates, loans should be closer to a last resort than a first choice.
