CHART 7

Amount You Would Need To Save To Have $10,000 Available When Your Child Begins College

Amount Available When Child Begins College

If you start Number saving when of years Monthly your child saving Savings Principal Earned Savings

(Assuming a 4 percent interest rate.)

Newborn 18 $32 $6,912 $3,187 $10,099

Age 4 14 45 7,560 2,552 10,112

Age 8 10 68 8,160 1,853 10,013

Age 12 6 124 8,928 1,144 10,072

Age 16 2 401 9,624 378 10,002

(Assuming an 8 percent interest rate.)

Newborn 18 $21 $4,536 $5,546 $10,082

Age 4 14 33 5,544 4,621 10,165

Age 8 10 55 6,660 3,462 10,062

Age 12 6 109 7,848 2,183 10,031

Age 16 2 386 9,264 746 10,010

When deciding which type of savings instrument or Investment is right for you and your family, you should consider four features:

-- Risk: The danger that the money you set aside could be worth less in the future.

-- Return: The amount of money you earn on the savings instrument or investment through interest or dividends.

-- Liquidity: How quickly you can gain access to the money in the instrument or investment.

-- Time Frame: The number of years you will need to save or invest.

When you select one or more savings instruments or investments, you should balance these factors by minimizing the risk while maximizing the return on your money. You will also want to be sure that you will be able to access the money at the time you need to pay for your child's education.

If you start early enough, you may feel confident about making some long-term investments. Some investments are riskier than others but can help you earn more money over time. Chart 8 lists some of the major kinds of savings instruments and investments that you may want to use. You can get more information on these and other savings instruments at local banks and at your neighborhood library.

Don't forget that you won't necessarily have to save for the entire cost of college. The following section tells about student financial aid for which you and your child might qualify and other ways to keep college costs down.

[Graphic Omitted]

Financial Aid

Financial aid can help many families meet college costs. Every year millions of students apply for and receive financial aid. In fact, almost one-half of all students who go on for more education after high school receive financial aid of some kind. In school year 1990-91, postsecondary students received about $28 billion in financial aid.

There are three main types of financial assistance available to qualified students at the college level:

-- Grants and Scholarships;

-- Loans; a

-- Work-Study.

* Grants and Scholarships

Grants and scholarships provide aid that does not have to be repaid. However, some require that recipients maintain certain grade levels or take certain courses.

* Loans

Loans are another type of financial aid and are available to both students and parents. Like a car loan or a mortgage for a house, an education loan must eventually be repaid. Often, payments do not begin until the student finishes school, and the interest rate on education loans is commonly lower than for other types of loans. For students with no established credit record, it is usually easier to get student loans than other kinds of loans.

There are many different kinds of education loans. Before taking out any loan, be sure to ask the following kinds of questions:

-- What are the exact provisions of the loan?

-- What is the interest rate?

-- Exactly how much has to be paid in interest?

-- What will the monthly payments be?

-- When will the monthly payments begin?

-- How long will the monthly payments lost?

-- What happens if you miss one of the monthly payments?

-- Is there a grace period for paying back the loan?

In all cases, a loan taken to pay for a college education must be repaid, whether or not a student finishes school or gets a job after graduation. Failure to repay a student loan can ruin a person's credit rating and make finances much more difficult in the future. This is an important reason to consider a college's graduation and job placement rates when you help your child choose a school.

* Work-Study Programs

Many students work during the summer and/ or part time during the school year to help pay for college. Although many obtain jobs on their own, many colleges also offer work-study programs to their students. A work-study job is often part of a student's financial aid package. The jobs are usually on campus and the money earned is used to pay for tuition or other college charges.

The types of financial aid discussed above can be merit-based, need-based, or a combination of merit-based and need-based.

* Merit-based Financial Aid

Merit-based assistance, usually in the form of scholarships or grants, is given to students who meet requirements not related to financial needs. For example, a merit scholarship may be given to a student who has done well in high school or one who displays artistic or athletic talent. Most merit-based aid is awarded on the basis of academic performance or potential.

* Need-based Financial Aid

"Need-based" means that the amount of aid a student can receive depends on the cost of the college and on his or her family's ability to pay these costs. Most financial aid is need-based and is available to qualified students.

What are the most common sources of financial aid?

Student financial aid is available from a number of sources, including the Federal Government, State governments, colleges and universities, and other organizations. Students can receive aid from more than one source.

* Federal Financial Assistance

The Federal Government supplies the largest amount of all student aid, about 75 percent or $20 billion annually. The largest and most popular Federal student aid programs are:

-- Federal Pell Grants

These are need-based grants that will be given to over 4 million students for school year 1992-93. In school year 1992-93, the maximum Pell Grant will be $2,400.

-- Federal Stafford Loans

Starting in October 1992 there will be two Stafford loan programs-one need-based program and another non-need-based. In 1992 approximately 4 million students will receive Stafford Loans.

Under the need-based program, the Federal Government pays interest on the loan while the student is in school and the student starts paying back the loan and the interest after graduation.

Under the non-need-based loan program, the interest accrues while the student is in school. After graduation the student must pay back the loan and the interest on the loan, including the interest that accrued while the student was in school.

Under the Stafford loan programs, the combined loan limits are $2625 for the first year, $3500 for the second year, $5500 for the third or more years. An undergraduate cannot borrow more than a total of $23,000.

In addition to Federal Stafford Loans for students, two other Federal loan programs are available through which students or their parents can borrow funds to attend school.

-- Federal Campus-Based Programs

The Federal Government also provides money to colleges to give to needy students. There are three Campus-Based programs--a grant program (Supplemental Educational Opportunity Grants or SEOGs), a loan program (Perkins Loans), and the College Work-Study Program.

Students can get aid from more than one Federal program. For the most up-to-date information about student aid supplied by the Federal Government, call the Federal Student Financial Aid Information Center toll-free at the U.S. Department of Education at 1-800-4FED-AID. You can also obtain a guide to Federal financial aid for students, called The Student Guide, which provides an extensive and updated discussion of all Federal student aid programs. You can obtain the Guide by writing to the following address:

Federal Student Aid Information Center P.O. Box 84 Washington, D.C. 20044

Call: 1-800-4FED-AID

* State Financial Assistance

States generally give portions of State budgets to public colleges and universities. This support lowers tuition for all students attending these schools. Some States also offer financial assistance directly to individual students, which can be need-based or merit-based. To find out about State aid where you live, call or write your State's higher education agency. The phone numbers and addresses of all of these agencies are listed in the last section of this handbook.

* College/University Assistance

Colleges themselves provide aid to many of their students. Most of this "institutional aid" is in the form of scholarships or grants. Some is need-based and some is merit-based.

When your child wants financial aid information about specific schools, he or she should contact the financial aid offices of these schools and request information.

* Other Types of Assistance

Other organizations, such as corporations, labor unions, professional associations, religious organizations, and credit unions, sometimes award financial aid. You can find out about the availability of such scholarships by contacting someone from the specific organization or by directly contacting its main headquarters.

In addition, some organizations, particularly foundations, offer scholarships to minorities, women, and disabled students. To learn more about such scholarships, go to the nearest public library with a good reference section and look for directories that list such scholarships. (The names of a few books that list scholarships appear in the last section of this handbook.) College admissions offices and high school guidance counselors should also be able to provide more information about scholarships.

* Help in Getting More Information

The guidance counselors at your child's high school should be able to provide information on when and how to apply for Federal, State, and other types of aid. If they cannot give you this information, try a local college. Even if your child doesn't plan to attend that particular institution, financial aid officers there should have information on Federal financial aid. Many colleges can also tell you about State aid and their own institutional aid.

Is my child eligible for financial aid? If so, how much?

To qualify for Federal aid, you or your child must submit a financial aid application. Applications for financial aid request information about your family's income, savings, and assets, as well as information on the number of children in the family who are in college. You can get a copy of the Federal financial aid form by calling the toll-free number that was mentioned earlier: 1-800-4FED-AID.

To apply for other aid in addition to Federal aid, you may need additional forms. High school guidance counselors can tell you more about applying for financial aid, including where to get forms you might need for State aid.

From information you report on the financial aid forms, your expected family contribution (EFC) is calculated. The EFC is the amount of money a student and his or her family are expected to contribute to the costs of attending college. Using the EFC and other information that you provide, each college to which you apply will determine your financial need. Financial need equals the cost of education minus the EFC and represents the maximum amount of need-based aid the student can receive. In addition, students can borrow money to cover the EFC.

Because financial aid determinations consider both financial need and education costs, you should not rule out a school because you think it costs too much. In fact, with financial aid it may cost no more to attend an expensive institution than a cheaper one. Chart 9 below summarizes the simple calculation that is performed to determine financial need.

CHART 9

How Much Need-Based Financial Aid Can My Child Get?

The amount of need-based financial aid a student qualifies for depends on his or her financial need. Financial need is equal to the cost of education (estimated costs for college attendance and basic living expenses) minus the family contribution (the amount a student's family is expected to pay, which varies according to the family's financial resources).

Expected Cost of Family Financial Education Contribution Needs

Includes costs of

Tuition Students can receive Fees Based on the financial up to this amount of Room - resources of a student = need-based financial Board and his or her family aid, such as Pell Books Supplies Grants and Stafford Transportation Loans.

To give you a better idea of how you can finance your child's college education, examples of two college students' financial aid packages are shown below. Note that these financial aid packages are Just examples of the kinds of packages that students with these profiles would receive if they attended the schools described below.

CONTINUED IN PREPARING YOUR CHILD FOR COLLEGE  Part 4