College costs often not as high as listed

Editor’s note: Last in a series of articles on paying college costs.

NEW YORK — Tuition figures aren’t always as scary as they first appear.

Grants, scholarships, loans and other factors can help families put a big dent in costs. The result is that about half of college students end up paying less than their school’s asking price.

“So many families just assume they’re never going to be able to afford a certain type of college,” said Anne Sturtevant, director of enrollment services at The College Board, a nonprofit association of schools that tracks college costs.

But the prospect of saving for school seems a lot more manageable when taking into account various funding resources, Sturtevant said. Families may even realize they can afford schools that previously seemed out of reach.

Here’s a breakdown of the factors that can affect what families ultimately pay.

To start, keep in mind that tuition varies greatly and not all schools have stratospheric costs.

Private colleges are generally the most expensive with an average annual price of $35,600 for tuition, room and board. Public universities cost $26,700 on average for out-of-state students and $15,200 for in-state students.

An increasingly popular option in this stalled economy is attending a two-year college, where the average annual tuition and fees fall to $2,500.

But that’s all before financial aid packages are taken into account. Last year, full-time undergraduates got an average of $10,000 in aid. That came in a mix of grants, scholarships, federal loans and work study.

A new law will soon also let families get a better sense of what their costs would be after aid. Starting in October 2011, schools will be required to post calculators on their websites that provide an estimate of the actual price of attendance based on a student’s economic situation.

Until then, try filling out a test FAFSA, or Free Application for Federal Student Aid, to gauge how much assistance your family might be eligible for. You can find it at www.fafsa4caster.ed.gov .

Keep in mind that the actual aid packages offered will vary depending on a school’s resources and how badly it wants to attract your son or daughter.

The ability to cover tuition without adding to your debt makes grants and scholarships the most desirable components of financial aid packages. This no-strings-attached money on average accounted for about half the aid given to students last year, or about $5,000 per student.

The amount awarded by the federal government depends on a formula that measures a family’s economic situation. But with Pell grants, families can get up to $5,550 a year. The maximum grant amount will rise to $5,975 between 2013 and 2017. And the federal grants students are entitled to don’t change regardless of the school they attend.

Schools also offer their own grants or scholarships to lure high-achieving students. Students can further offset costs by applying for additional scholarships on their own.

Ideally your child won’t have to take out any loans. But if necessary, remember that federal loans come with lower interest rates than private loans.

They also come with greater benefits and safeguards. For example, borrowers who earn modest salaries after graduation can apply to have payments capped at 15 percent of their discretionary income.

Eligibility for the program is determined by a formula that weighs a person’s income against his or her debt load. A calculator at www.ibrinfo.org can help borrowers determine eligibility.

Starting in 2014, payments for new loans will be capped at 10 percent of income.

The program also forgives any remaining debt after 25 years. Workers in public service have loans forgiven after 10 years.

Graduates who can’t find work or don’t earn much can opt to defer payments under fairly clear-cut guidelines. With private loans, it’s up to the lender to decide whether to grant relief.

For the neediest students, the government also picks up the interest costs while students are in school.

Parents may worry that having a job can hinder a student’s academic pursuits. But the federal work-study program that provides jobs to students as part of their financial aid package usually doesn’t exceed 15 hours a week.

Schools also try to place students in jobs related to fields they’re interested in. So a biology major might get job in a science lab and a business major might be placed in an office setting.

The routine of an on-campus job can also boost a student’s academic performance, notes Sturtevant of The College Board.

“If you have a job, you have to organize the rest of your life so you tend to have better study habits,” she said. “And you’re automatically engaged in the campus community.”

Another way to offset college costs is with tax credits and deductions. Many middle-class families qualify for them too.

This year, the American Opportunity Credit lets families claim a tax credit of $2,500 per student. That’s $700 more than the Hope tax credit it replaced. The full credit is available to those who earn up to $80,000, or up to $160,000 for married couples filing a joint return. A tax credit directly lowers the amount owed in taxes, unlike a deduction which lowers taxable income.

Those with incomes of less than $70,000 can also claim deductions of up to $2,500 on student loan interest payments. For a full list of education tax benefits, check out http://tinyurl.com/ngu6wc.