Finding free (or low-interest) money for college

No doubt about it. Going to college is exciting. But paying for it? Not so much. More like stressful, overwhelming and even panic inducing.

Whoa, there -- take a deep breath. Learn the basics of financial aid (and finding the cheapest colleges) and you're on the path to paying for college without tearing your hair out.

How to think about financial aid
First, let's learn a basic formula that will help you think about college financing.

Net costs equals total costs minus gift aid.

What does that mean? What you actually pay for college equals the sticker price of attending, minus any free money you get.

"It's pretty rare that someone pays the actual sticker price," says Haley Chitty, spokesperson for the National Association of Student Financial Aid Administrators. "Before becoming discouraged, figure out the net costs." To do that, you've got to find out what kind of free aid is available.

Aid Basics
There are four different types of student aid:

1. Grants and scholarships. Grants usually come from the state or federal government, and scholarships can come from your college or private sources, like individuals, business and foundations. They're the best kind of financial aid because they're completely free.

2. Work-study funds. Your college may offer you the chance to work a set number of hours a week on campus, and in return, you get money for school.

3. Education loans. Loans come from two sources -- government loans that offer low-interest rates for students, and private loans, which can be a lot more expensive, although the rules of that game have changed now that President Obama has signed the Student Loan legislation into law.

4. Education tax benefits. Save money on your income taxes by claiming your out-of-pocket costs for school. These three types of tax benefits -- the Hope scholarship tax credit, the Lifetime Learning Tax Credit, and the tuition and fees deduction -- are sort of like a rebate on your college costs.

Now that we know the four types of student aid, we can move on to the big question: How do we find them?

It all starts with FAFSA
FAFSA stands for "Free Application for Federal Student Aid." It's the most important document to help you figure out what you will qualify for in terms of grants and government loans. Since most federal student aid is awarded on the basis of financial need, what your family can afford will determine how much aid you get. FAFSA determines your financial need.

But no matter who you are or how much you make, fill out the FAFSA.

"If you can, fill it out online. You can avoid a bunch of errors that way," says Chitty. "And if you still need help, ask for it. There are countless organizations and schools that help students fill out the FAFSA."

After you submit the FAFSA and are accepted to a school, you'll get a financial aid award letter from your college, telling you how much you qualify for in grants, scholarships, work study and loans. But remember – loans aren't free. Before you accept any student loan offers, think clearly about how you're going to pay them back.

"We always hear horror stories of a student who takes on too much debt and enters a career that's not lucrative enough to pay off those loans," says Chitty. "Before you borrow too much, think: how much are you going to make in your career?"

The Golden Egg -- Scholarships
To cut down what you'll pay for college, pursue scholarships. There are about 1.5 million scholarships available for students, and the best way to find them are internet sites like FinAid and FastWeb, created by financial aid expert Mark Kantrowicz. You fill out an online profile, and they match you with potential scholarship and tell you how to apply.

Some of the scholarships may be small,just a few hundred dollars, but Kantrowitz says those small awards shouldn't be taken for granted. "Some students tend to 'poo poo' a smaller awards, but the smaller awards tend to be less competitive, so your chances of winning is much greater," says Kantrowitz.

Say there's a $500 scholarship that you have a 10% chance of winning, and it will take you an hour to apply. Maybe you don't win, but if you apply for enough of them, you're likely to win something. "That's an hour of your time for a 10% chance at $500," says Kantrowitz. "I don't know of any high school student that can earn $50 an hour."

But beware the scammers. There are many unscrupulous individuals out there, asking for money up front. Don't buy it. "You should never invest more than a postage stamp to find out information on a scholarship or apply for a scholarship," says Kantrowitz. "If you have to pay money to get money, it's probably a scam."

Work Hard for the Money
Financial aid is what you make of it. Put in the time now, and you'll be grateful when you graduate without a mountain of debt.

Now that you're armed with knowledge, get out there and find your money for college!
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