How College Financial Aid Works

What about Loans?

This is where we get to the "paying for college after graduation" part -- and that means borrowing money. Borrowing should always be used as a last resort to pay for college. That said, borrowing can and should be used to close the gap between the resources available to your family and the cost of the institution your student wants and deserves to attend.

Tax Credits
Created by Congress, the American Opportunity Credit (formerly the Hope Credit) provides a tax credit based on the family's income and the tuition the family pays. Qualified families may claim up to $2,500 per student. In addition, the Lifetime Learning Tax Credit is available to individuals who file a tax return and owe taxes. Depending upon your income, your family may claim a tax credit of up to $4,000 a year. For details on your eligibility, make sure that you check with your college's financial aid office or the IRS.

For many families, home equity represents their largest "savings" account. If your home has equity value, you should consider using it to pay for college. Although not always true, home equity loan interest rates are often lower than those charged by commercial loan sources. Additionally, home equity loan interest is tax deductible, which further lowers the cost of attendance. Equally as important as low interest is the fact that home-equity payments can be extended over a longer period than just the four years of enrollment.

There are, of course, student loans and parent loans -- both of which are becoming more important all the time as families struggle to pay the rising costs of higher education. For more on each, read on.