Despite high costs, it's still possible to finance a college education

If a high school student is determined to go to college - and a particular college at that - he or she can find a way to pay for it. That, at least, was what people thought a decade or more ago. As long as the college or university would accept them, people were told, the money to pay for the education would be found, somehow.

Today, however, with cuts in federal student assistance, jumps in tuition at public and private colleges, and a growing concern about postgraduate debt burdens that can add up to $40,000 or more, many students and parents - and perhaps grandparents - are wondering if that old maxim is still true.

''Yes,'' say college financial aid officials, bankers, tax experts, and financial planners. Almost without exception, these people agree that, while paying for college requires better and longer planning and more creativity in finding and using financial aid and tax planning techniques, most young Americans need not feel cut off from the opportunities of higher education just because they don't have all the money needed to pay for four years of school on the first day of their freshman year.

''Access to higher education is still possible for all income levels,'' says James Scannell, dean of admissions and director of financial aid at Cornell University in Ithaca, N.Y.

''For the fairly good students, there are more options,'' said P. Kemp Fain, a financial planner in Knoxville, Tenn.

''Anyone who's seriously interested in going to college can find a way to pay for it,'' adds Allan W. Ostar, president of the American Association of State Colleges and Universities. ''There's a wide range of student financial aid and loan packages that can be put together.''

These optimistic views may come as a surprise to many parents, particularly those considering a private college or university. In a recent survey for the National Institute of Independent Colleges and Universities, the Roper Organization found that 40 percent of the parents who favored private colleges over public institutions felt they would not be able to afford this option. The survey found that 77 percent of the parents expected one or more of their children to attend college.

The College Board says the average cost of attending a private institution was $9,570 last year, compared with $4,900 at public schools; both figures are expected to climb 6 percent this fall.

And, according to a forecast by Coopers & Lybrand, the accounting firm, parents of a child born this year can expect to pay from $140,000 to $180,000 for four years of tuition at a private institution 18 years from now and at least $45,000 for a public college or university. This is, of course, if current forecasts about college expenses hold up.

For now, though, the costs look plenty high already, particularly at many of the private colleges. At the Massachusetts Institute of Technology, for example, this year's bill for tuition, room and board will reach nearly $16,000, - plus a few hundred dollars more for books, fees, and the incidental expenses a student can generate during a school year.

But these high costs should not stop families from considering the college they want, says Leonard Gallagher, MIT's director of student financial aid.

''The tragedy for a school like MIT is that people look at our costs and turn away,'' Mr. Gallagher said. ''If you want to come to MIT and MIT wants you, work out things with the admissions office, then let us work out how you're going to pay for it.''

Actually, says Byron Hartley, director of financial aid at Boston University, the process of finding financial aid - whether in the form of grants, loans, or scholarships - should begin even before the application process starts.

''By the eighth or ninth grade,'' Mr. Hartley says, students and their parents should begin assessing the family financial situation and finding out as much as they can about what forms of assistance are available and how to apply for them. These steps should be taken despite the fact that formal applications for such things as federally sponsored Guaranteed Student Loans (GSL) cannot be made until January of the student's senior year, when the family's previous year's income tax information is available.

At Boston University, where annual tuition, fees, and room and board add up to about $14,400, a student needing $10,000 of assistance, for example, might see an aid package broken down this way: $6,000 in the form of ''gifts,'' including state and federal grants (such as the Pell Grant), $1,800 from on-campus student work, and the remaining $2,200 in loans. There are many possible variations on this combination, Hartley points out.

A major reason the planning has to begin so much earlier today is, of course, the rapid escalation of college costs, and the need to meet an expense that may rank second in size only to the cost of a house. Although tuition and fee increases were held to 7 or 8 percent this year, while the consumer price index rose just over 4 percent, annual increases of 13 and 14 percent were commonplace just two or three years ago.

While costs for higher education are high and promise to go higher, there are some developments that have eased the burden somewhat. For instance, says Katherine Hanson, executive director of the Consortium on Financing Higher Education, when she was going to college in the 1960s ''we didn't have the choice of paying on a monthly basis.'' Payments for tuition and room and board were expected to be made at the beginning of each term or semester. Now, many colleges accept more numerous and smaller monthly installments.

Also in the 1960s, Mrs. Hanson says, ''we didn't have the choice of borrowing at 9 percent (or the '60s equivalent of borrowing at several points below prevailing consumer rates) and not beginning to repay it until well after graduation.''

Finally, she concludes, ''we didn't have the option of buying four years' tuition at today's prices.'' Many colleges are now permitting full payment for all four years at the beginning of the freshman year, a tactic that protects parents from tuition increases throughout that period and gives the college the use of the money.

Still, rising costs and more complicated financial aid procedures, particularly at the federal level, have made the job of planning and paying for higher education much more challenging.

''Higher education is one of the three American dreams that are at risk,'' asserts George Barbee, executive director of the Consumer Financial Institute, a financial planning firm in Newton, Mass. The two others are the purchase of a home and a secure retirement, he says. But the way to remove the risk from the ability to attend college is the same as for the others, he believes. ''The surest way to accomplish this is through good planning.''

The first step in this planning, Mr. Barbee says, is to ''realize that higher education is a family affair, not just the responsibility of the parents. That means parents, kids, maybe even grandparents need to get involved.''

And they need to start this process sooner than ever. ''People are coming to us earlier in life to ask what they should do,'' Mr. Barbee noted. He is, for example, seeing more families asking about college-saving strategies for children who are of kindergarten age or younger.

The first thing most parents think of is usually savings. ''If you're starting to plan when the kids are age 2 or 1, the costs are almost insignificant in terms of what you need to save each year,'' says Gene Osborne, tax partner at Touche Ross & Co., the accounting firm.

Usually, parents want to protect the interest on these savings from taxes. Another article in this section will discuss some tax-saving strategies to make this easier.

In addition to straightforward savings and investment programs, here are some other options that might be considered:

* Zero coupon bonds. These bonds sell at a deep discount from the face value, which is collected at maturity. For instance, a $1,000 ''zero'' with a compounded annual rate of return of 12.25 percent could be purchased for $200 today. In 20 years, you could collect the full $1,000. The small initial outlay has made these very popular for accumulating college savings, but there are some drawbacks that should be considered.

First, these bonds may be subject to an early ''call'' provision, giving the issuers the right to repay your initial investment, plus any interest earned to that point, before maturity.

Second, the Internal Revenue Service considers any interest earned each year you own the bond as income for those years - even though you do not have use of that money.

Third, the security of the basic investment may not be as great as you want for college savings. You can increase this security by purchasing pools of zeros issued by the Treasury Department, known as TIGRS or CATS, backed by the United States government. You can also buy insured zero coupon certificates of deposit.

* Common stock. ''There's nothing wrong with good old common stock with long-term capital gains,'' Mr. Barbee said. Thanks to this year's tax law, stock purchased either directly or through a mutual fund and held at least six months (the holding period reverts to one year after 1987) qualifies for more favorable long-term capital gains treatment. If the stock is held in the child's name, the treatment is not only more favorable, it happens at a much lower rate.

* Home equity. ''For many people, that's the only alternative,'' Mr. Barbee says. ''If that's their major asset, they have to make it liquid.''

''A family that owns their home is going to be considered differently than one that rents,'' Boston University's Mr. Hartley adds. In most cases, making the home ''liquid'' will mean taking out a second mortgage or some other type of loan based on equity in the home. Because this can substantially add to the family's debt burden, and because the second mortgage could be of the variable-rate variety while the first mortgage might have been a fixed-rate, this option should be considered very carefully with a financial adviser or planner.

''A lot of people look at equity loans as a quick source of cash and misuse them,'' Barbee says. ''But college is not a misuse.''