Advance savings and financial aid are the usual ways of affording a college education. Setting aside a specific amount each month or pay period enables you to build a college fund. The earlier savings are begun, the smaller the monthly amount required. Some families who lack complete funding can pay part of the cost from current earnings while their child attends school.

Some young people work part-time to fund a portion of the costs.

Rate of Return
Year	4%	6%	8%	10%	12%
1	$1,230	$1,240	$1,250	$1,270	$1,280
2	2,500	2,560	2,610	2,670	2,720
3	3,830	3,950	4,080	4,210	4,350
4	5,210	5,440	5,670	5,920	6,180
5	6,650	7,010	7,400	7,810	8,250
6	8,150	8,680	9,260	9,890	10,580
7	9,710	10,460	11,290	12,200	13,200
8	11,330	12,340	13,480	14,740	16,150
9	13,020	14,350	15,850	17,550	19,480
10	14,770	16,470	18,420	20,660	23,230
15	24,690	29,230	34,830	41,790	50,460
20	36,800	46,440	59,290	76,570	99,910

Investing to Meet College Goals
When deciding which savings instruments or investments are appropriate for your family situation, consider the age of the prospective student as well as the:

• Risk: The possibility that money you save and invest could be worth less in the future.
• Return: The earnings on savings and investments from interest or dividends.
• Liquidity: The ability to access your invested money quickly.
• Time Frame: The number of years needed to reach the goal.

Diversify your savings and investments by selecting more than one savings instrument or investment for college funds. This helps minimize the risk while maximizing the return or yield. Check to be certain you can access the funds without penalty when you need to pay schooling costs.

If you have from 8 to 18 years to accumulate funds, consider investments that grow in value like common stocks or stock mutual funds. Growth mutual funds are shares in companies that focus on growth and value rather than dividends. They offer a diverse mix of companies in various industries. The investor pays a fee for professional management.

If you only have 4 to 8 years to invest, consider a balanced investment portfolio with holdings in preferred stock, common stock, and bonds. Balanced mutual fund managers seek to conserve initial principal, pay current income, and promote long-term growth of principal and income.

Families with children over age 14 have a short time frame in which to invest. They should carefully evaluate investments for income and liquidity. Funds could be moved into either fixed income securities like money market funds, or bank certificates of deposits (CDs) timed to mature when the tuition and fee payments are due.

The key to saving for college is to:

• begin early;
• save regularly;
• consider risk and return;
• diversify among different investments; and
• review and adjust the portfolio as needed.

Financial Aid Possibilities

Financial aid is the difference between what families can afford to pay and the actual cost of a college education. It consists of three kinds of assistance (1) grants and scholarships, (2) work-study programs, and (3) student loans.

It is rare when families can meet their portion of costs from current income. Therefore, many fund the family portion with a combination of savings, current income, and loans. Having savings or assets does not automatically exclude a family from receiving financial aid. Income is the major factor in establishing a family's contribution level. Assets and savings are considered in the calculation but not more than 6 percent is included in any given year.

College financing is considered a "shared responsibility" by the family and the educational institution. Most financial aid is need-based and is available to qualified students. Qualifications are determined using formulas to estimate a family's ability to pay, relative to other applicants. The formulas are based on the number of family members in college and a conservative allowance for living expenses.

Families are generally eligible for financial aid equal to the amount of demonstrated need. The expected family contribution is subtracted from attendance costs at a particular college to arrive at an estimate of the demonstrated financial need. The "need" might be great at a high-priced college and nonexistent at a low-priced school.

Usually more expensive schools tend to have more financial aid money available. It is important to explore every college that interests your child with the idea that financial aid will be obtained. Some schools meet the full financial need of each student, others try to assist as many individuals as possible by meeting a portion of all the requests. All schools offer a combination of grants, on-campus employment, and loans. The packages differ depending upon how eager the school is to persuade your child to enroll.

Grants, Scholarships,and Loans
Grants and scholarships are forms of financial aid that do not have to be repaid. Some require recipients to maintain a certain grade point average (GPA) or take specified courses. If grants or scholarships are merit-based they generally are not related to financial needs as they are usually awarded on the basis of academic performance or potential.

The federal government is the largest supplier of student aid with programs like the Federal Pell Grants which are need-based and do not have to be repaid and the Federal Stafford Loans which are both subsidized and nonsubsidized. Subsidized Stafford loans are need-based and are interest free while the student is in school. Unsubsidized Stafford Loans are not need-based and do accrue interest while the student is in school. Payments for both Stafford loans may be deferred while the student is in school and for 6 months after the student leaves school. The Federal PLUS Loan program allows parents to borrow additional funds for their student's education. PLUS loans are not need-based, accrue interest while the student is in school, and payments cannot be deferred while the student is in school.

States provide student grants and scholarships based on a combination of merit and financial need. Most colleges offer several kinds of grants which may or may not be based on financial need. States also support higher education in the form of budget subsidies to the state university system. This support lowers the tuition for all students attending these schools. Additionally, there are state scholarships available for eligible students.

Thousands of grants and scholarship programs are available to students with superior academic records, special interests, and other qualifying characteristics. Certain corporations, labor unions, professional associations, religious organizations, foundations, and even credit unions award financial aid. Check your public library and on-line resources for directories of such listings. College admission officers and high school guidance counselors may also be able to provide some of this information.

Student Loans
Sixty percent of all financial aid is in the form of educational loans borrowed by students and their parents. Student loans are available to both students and parents. Loans must be repaid. The interest rates are lower on educational loans than on commercial loans. The payments on many student loans do not begin until school is completed.

There are many different kinds of student loans. Ask the following questions prior to taking out a loan:

• What are the exact provisions of the loan?
• What is the interest rate--the APR (annual percentage rate)?
• What is the total finance charge--loan fees plus dollar amount in interest payments?
• What are the monthly payments?
• When do the monthly payments begin?
• How long will the payments last?
• What happens if one payment is missed?
• Is there a grace period for the repayment of the loan?

In all cases, a loan taken out to pay for a college education must be repaid whether or not a student finishes school or gets a job after graduation. Failure to repay a student loan can ruin an individual's credit rating, is rarely dismissed from bankruptcy, and makes access to credit difficult in the future. For this reason, evaluate the job placement rates and school completion rates when helping your child select a career and a school.

Work Study Programs
Many students fund part of their college costs through summer and or part-time work. Some students obtain jobs on their own while some colleges offer work-study programs. A work-study job is frequently part of a student's financial aid package. These positions are on campus and the money earned is used for tuition or other school charges.