Four ways to save big on the cost of college

For families facing college bills either in the near future or several years down the line, the picture isn't pretty. Grants have become a shrinking slice of the student-aid pie, boosting the importance of cost containment. In addition, college costs keep rising faster than inflation. Students at four-year public colleges this year will pay an average of $12,127 to cover tuition, fees, and room and board - up 6.6 percent from last year, according to the College Board. The average four-year private college now charges more than $29,000 for a year on campus.

What's more, congressional budget cuts mean variable-rate federal loans, with rates as low as 4.7 percent, will lock in July 1 at higher fixed rates. Stafford loans, the most popular of all, will be fixed at 6.8 percent while Parent Loans for Undergraduate Students (PLUS) will be fixed at 8.5 percent.

But don't despair. As the financial aid season heats up this month, a few savvy moves can save families thousands of dollars, say experts.

First step for those with college-age children: Do your taxes now. Then use the tax return to fill out the Free Application for Federal Student Aid (FAFSA), which schools use as a basis for many award decisions. Since decisions often occur on a first-come, first-served basis, early-bird filers have a better chance of getting the financial-aid worm. After that, consider these four strategies to keep costs down:

Brett Taylor of Oil City, Pa., has two sisters attending public universities, but he's spending less than they are to attend Allegheny College, where the price tag is $33,500. The secret: three scholarships worth a total of $11,000.

"I had butterflies in my stomach for a couple of months, thinking about taking out $15,000 in loans" to supplement his family's savings, Mr. Taylor says. Instead, needing to borrow only about $4,000 per year in federal Perkins and Stafford loans was "a big relief."

Like many scholarship winners, Taylor beat his local bushes for opportunities. Through his high school guidance office, he found two scholarships earmarked for Allegheny students from Venango County, where Oil City is located. Then he got creative, seeking funds earmarked for a student enrolled at either Yale University or the Massachusetts Institute of Technology. Since no one qualified this year, some of the funds went his way to the tune of another $2,000.

"Even if you think a lot of people are applying [for a particular scholarship], a lot of them aren't," Taylor says. "So it's worth it to try because you might get it."

Applying for lots of scholarships doesn't have to be a burden, says Ben Kaplan, author of "How to Go to College Almost for Free: 10 Days to Scholarship Success."

"In the process of filling out your college applications, you've already done a tremendous amount of work, so then go apply for scholarships because so many of the components [in a college application] are reusable," Mr. Kaplan says.

Wendy Whiton of Bethlehem, N.H., has a high school-age son with a dream to attend the University of New Hampshire (UNH) in Durham. But at $16,810 per year, the family of six can't afford to send him there for four years.

Solution: He plans to spend his first two years commuting to a technical college in Concord, N.H., then will transfer to UNH. "When you transfer, your [future] employer will see the college you graduated from, so it doesn't really matter where you did your first two years," Mrs. Whiton says. Her son, she adds, "is a pretty practical kid."

This kind of approach works well when students thoroughly research course requirements well in advance, says Ann Coles, senior vice president of college access at The Education Resources Institute, a nonprofit organization based in Boston. They should ask, for instance, about a school's relationships with community colleges and its expectations for those who wish to transfer credits.

"Lots of students attend more than one college these days," she says. "If they could think strategically about this, they could do it to significantly reduce their costs."

Less time on campus means fewer tuition bills since colleges usually charge according to the number of courses taken. Advanced placement (AP) tests provide a way to cut back on the hours - and the dollars - spent pursuing a college degree.

Consider the path taken by Meghan Price of Gainesville, Ga. Because she scored well on the six AP subject exams she took in high school, she was able to enroll this past fall as a sophomore for her first year at the University of Massachusetts in Boston. By spending three years on campus instead of four, she expects to save between $32,000 and $34,000.

"I wanted to place out of core courses and get on to more interesting work," Meghan says. "But it's always nice to save a little bit of money."

Many students have caught on to the idea: 2.1 million students took AP exams in 2005, up from 786,000 in 1995. What's more, students with proficiency in one of 35 subjects can cut their collegiate hours just by showing what they know in a College Level Examination Program (CLEP) test. This, too, is growing in popularity: 140,000 nonmilitary students took CLEP tests in 2005, up 32 percent from 106,000 in 1995.

By passing a CLEP test, students don't have to "enroll in a [core curriculum] class they don't need," says CLEP Director Ariel Foster. "Especially if you're taking out a loan, it's a long-term financial commitment ... that you can apply toward a course you really need."

As a Colorado resident, Allan Roth qualifies for tax deductions if he contributes to his own state's 529 program, a tax shelter for college savings. But for the past five years, he's been steering the lion's share of his college nest egg into Utah's 529 program. The reason: Utah's low plan management fees enable him to save more, even though he doesn't get a state tax deduction.

Unlike some states, Utah doesn't hire pricey investment firms but invests directly in low-cost Vanguard mutual funds. "We're operating this to help families save for college, not to make a profit," says Lynne Ward, director of the Utah Educational Savings Plan.

Despite efforts to save, Americans borrowed $13.8 billion from nonfederal sources to pay for college last year, up from $1.7 billion in 1995-96, according to last year's College Board report on student aid. Grants and loans each make up 46 percent of student aid funding, while the remainder comes from tax credits and work-study programs. Grants made up 50 percent of student aid funding in 2001-02.

When seeking out a loan, students should compare not just interest rates, but also payback benefits, such as rates that drop with a certain number of on-time payments, says Sheryle Proper, director of financial aid at Allegheny College and coauthor of "The Everything Paying for College Book."

"It's more than just taking the first loan that's available," Ms. Proper says. "There's a little bit of work involved in shopping around and comparing."