An Ideal Scenario: You or your parents began saving for college when you were very small. Your family started saving, at first in small increments, gradually increasing the amounts as you got older and earning power grew, so that today the cost of college isn't incredibly daunting.

A More Likely Scenario: If you're like most of us, however, you probably began thinking seriously about college only a few years ago. Your family has not been able to put aside large amounts of money, because other important things kept coming up.

Few families can afford to pay the full cost of four years of college without assistance. Financial aid is designed to bridge the gap between what a family can afford to pay for school and what the school actually costs. Families who understand the process will come out ahead and avoid a lot of the stress that goes along with the process.

While students start to work on admissions applications, parents should be gathering together their records to begin applying for financial aid. At a minimum, students applying for aid must fill out the Free Application for Federal Student Aid (FAFSA). This form, available at http://www.fafsa.ed.gov/, can be filled out only after January 1 of the year a student intends to enroll in school. Many private colleges and some state-supported schools may also require you to fill out the CSS/Financial Aid PROFILE form. A few schools require forms specific to their institutions. Check with each college to make sure that you are filling out all the required paperwork. Schools will use these forms to determine your Expected Family Contribution (EFC).

The amount of aid you are eligible to receive is based on the relationship between two key components, the Cost of Attendance and the Expected Family Contribution (EFC).

• tuition and fees
• room and board
• personal expenses
• books and supplies
• transportation

The Expected Family Contribution (EFC) is a financial aid term for the amount of money a family will be expected to finance toward a student's education. For each year a student is in school, this number will be re-calculated based on the family's current financial situation.

• parents' available income
• parents' available assets
• students' available income
• students' available assets

The family's information will be run through one or more formulas to determine your EFC. Financial Aid Officers (FAO’s) will compare the Cost of Attendance to your EFC and then determine your "Need" -- the amount of aid you are eligible to receive.

In theory, your EFC will be approximately the same -- no matter what schools you apply to. If your EFC is calculated to be $15,300 and State U. costs $19,300, you will pay about $15,300 and the school will meet your need -- in this case, $4,000 -- with an aid package. If you apply to Private U., which costs $47,000, you will still pay about $15,300 and the school will meet your need with an aid package worth approximately $31,700. It’s important to remember that not every school is able to meet need in full. That said, never rule out schools with high "sticker prices" – as your contribution to the cost of attendance may be the same (or sometimes even less!) at more expensive schools. This is one of the best things about the financial aid process.

Near the same time students receive acceptance letters, an FAO at each of those schools will send off an award letter. Award letters detail your financial aid package – a combination of grants, work study, and loans that will make up the difference between your EFC and what the school actually costs.

• Grants and Scholarships: These are the best kind of aid, because they don't have to be paid back! Essentially, a grant is free money. Some grant money comes from the federal government, some from state governments, and some from the school itself. Best of all, grant money is almost always tax free. Scholarships are also free money, although there may be some conditions attached (academic excellence, for example). Contrary to popular wisdom, scholarships are usually awarded by schools themselves.
  
  
• Federal Work Study (FWS): The federal government subsidizes this program, which provides part-time jobs to students. The money earned is put toward either tuition or living expenses.
  
  
• Student Loans: There are two main categories: need-based loans and non-need based loans. The loans that will be offered as part of your aid package in the award letter are primarily need-based loans, such as the Perkins and subsidized Stafford loans. No interest is charged while the student is in school, and repayment does not begin on Perkins or subsidized Stafford loans until the student graduates, leaves school, or drops below half-time enrollment status. Unsubsidized Stafford Loans are not based on need and virtually all students who fill out a FAFSA are eligible for these loans. From the moment a student takes out an unsubsidized Stafford loan, he or she will be charged interest. Students are given the option of paying the interest while in school or deferring the payment of interest (which will continue to accrue) until repayment of principal begins.
  
  Some schools administer their Stafford loans through the William D. Ford Federal Direct Loan Program. At a Direct Lending school, students must receive their federal Stafford loan directly from the federal government through the school’s financial aid office. If a school chooses not to be a Direct Lender, it will belong to the Federal Family Education Loan Program (FFELP). Students must use private lenders to fund their Stafford loans. Schools will often establish relationships with various lenders as part of a Preferred Lender list. Many schools encourage families to use lenders on the Preferred Lender list as those lenders may offer faster delivery time by participating in electronic loan dispersal. Even though a school might encourage you to use one of their Preferred Lenders, there is no obligation to do so.

In some cases, the college may tell you that you have "unmet need." In other words, they were unable to supply the full difference between the cost of their school and the amount they feel you can afford to pay. If you really want to attend this school, you may have to take on additional debt. There are other low-cost loan options out there. Federal Parent Loans for Undergraduate Students (PLUS) offer a fixed-rate loan for parents seeking to help finance their children's education. Homeowners may find that there is a tax deduction available if they use a home equity loan to pay for educational expenses.

Finally, many lenders have developed alternatives to the federal loan programs to help families manage with the education expenses. These alternative loans often mimic some of the best features of the federal programs; however, there is usually no cap on the interest rate charged.

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