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Is there such a thing as free money for college?

Posted: December 9, 2011 1:55 a.m.
Updated: December 9, 2011 1:55 a.m.
 

In my last meeting with Heather and her parents, we were discussing some of the places where “free money” is available to help pay for her college education. Heather is a hard-working young lady who has earned good grades, desires to play NCAA Division I sports, and has involved herself in school and community activities.

Heather came into the office very excited because she has been applying for several scholarships that she felt qualified for and had heard back from one sponsor.

The good news is that she is a finalist for a large award and has been invited to an annual banquet. Every year, there are millions of dollars available from thousands of private scholarships available through a wide variety of sources.

These are sponsored by service groups such as the Elks, trade groups such as the Christermon Foundation, and by individual sponsors.

These scholarships can be very general or very specific as to who can apply, and the awards can range from a few hundred dollars to tens of thousands of dollars.

Many of these awards do not require the best grades; they often reward other qualities or interests that sponsors seek to promote.

While it is true some of this money gets left on the table every year, that is usually from the scholarships that have very restrictive conditions for eligibility.

These awards are “free money” for college educations.

Private scholarships amount to about 4 percent of the total scholarship money available — great if you can get one, but a small piece of the total pie.

There are many good, free websites that can help college-bound students find such scholarships. Start your search with FastWeb.com or MeritAid.com.

Deserving of special note are the several scholarships exclusively for military personnel. In addition, veterans are also entitled to benefits that help pay for college.

Last year approximately 2.1 percent of students qualified for and received veterans’ benefits averaging $5,400 per year. This is money that does not have to be paid back.

Heather is also the fortunate beneficiary of another source of funds that don’t need to be paid back — money that was saved for her by generous grandparents.

There are several tax-advantaged ways to save for college: 529 plans, Coverdell savings plans and prepaid tuition programs are the most popular. These are sometimes referred to as education IRAs.

Funds that are in the parents’ name or student’s name will be part of the formula that determines the Expected Family Contribution, which is calculated when you complete the Free Application for Federal Student Aid (FAFSA).

Funds held in the grandparents’ names are not considered by FAFSA and may increase a student’s eligibility for other financial aid. As with any planning, it is important to look at each case individually and determine the best choice of tool to use.

With all savings strategies, flexibility is important. In the right circumstances, an individual IRA or variable universal life insurance offer other options to save for college.

When faced with costs averaging more than $100,000 over a four-year period, all opportunities should be explored. Understanding and taking advantage of “free money” can help students afford school and start their working careers with less debt.

The next time we meet, the focus will be on resources available based on need.

Chris Towles is a consultant for College Bound Strategies LLC and can be reached at (888) 791-9616.

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