THE ABCs OF SAVING FOR COLLEGE : Matters of Degree : A B.A. Is More Within Reach Than Many Think

When Adele Sagun told her father she wanted to attend Amherst--a small, private and expensive East Coast college--he laughed.

“Every parent would like to send their kids to college. But she started telling me about the cost, saying it costs $10,000 or $20,000 a year,” says Jesus Sagun, an Alhambra-based electronics technician. “At this point, I have nothing saved. I am up to the hilt in debt. I started laughing. What was I supposed to do?”

Of course, parents don’t consider college costs a laughing matter. Higher education is expensive. Really expensive.

The average cost of college currently ranges between $5,600 and $19,000 per year, according to the College Board’s annual college-cost survey. Next year--when today’s high school seniors enroll--those costs are likely to have jumped between 4% and 10%--a rate of increase that substantially exceeds the rate of inflation, college experts note.

For parents with high school-age children, the impending price tag may seem insurmountable. Amounts this large are difficult if not impossible to swing out of income. And few started saving for college when the kids were still in diapers.

But there are ways to swing the expense. Parents and students simply need to educate themselves on the ABCs of financial aid for students and last-minute planning techniques.

A is for Academics, Athletics and Aid

You’re not poor, so you assume you can’t qualify for financial aid for students? Big mistake.

Families with modest income and assets do qualify for more aid than middle- and upper-middle-income applicants. But some funds are given out on the basis of merit: the academic and athletic scholarships.

Some of these are national and well-known, such as the National Merit Scholarships for students who do exceptionally well on the Preliminary Scholastic Aptitude Test. But thousands of others are local or college-specific.

For example, Lebanon Valley College, a private liberal arts school in Annville, Pa., gives scholarships equating to 50% of the college’s tuition to any student who graduates in the top 10% of their class. That’s worth about $7,000. Those in the top 20% get scholarships amounting to 30% of the price, while those in the top 30% get up to 25% of the tuition paid for them, a college spokeswoman says.

And for the athletic, there are scholarships ranging from a few hundred dollars to the full cost of tuition. And they’re not just for football.

Depending on the university’s sports program, your skills and your gender, you could receive money for playing anything from basketball, baseball and soccer to tennis, judo, archery, golf, wrestling, bowling and squash.

Still, the vast majority of financial aid for students is need-based. To qualify, students and their parents must fill out an extensive form called the Free Application for Federal Student Aid. Some universities require a second aid application as well.

Once the so-called FAFSA is complete, it is sent to a service that assesses how much you and your family can contribute to the cost of college. This assessment is based on a formula that takes a look at the income and assets of the parents and student and how many people are in the family.

In the end, parents are expected to contribute an amount equivalent to between 6% and 12% of their “available” income and assets each year.

Students usually are expected to contribute a larger portion of their income and a much larger--about 35%--portion of their assets each year. The combined amount--parents and student--is the total expected family contribution.

This analysis is forwarded to the colleges you’ve chosen. Those colleges determine your need by looking at the actual expense of attending their school compared to what your family can pay.

The college then puts together a financial aid package that aims to fill the gap between what you’re able to pay compared to what it actually costs. The package is likely to include a conglomeration of scholarships, grants, loans and work-study arrangements.

Here’s the good news: Many colleges--particularly the pricey ones--have adopted something called “100% need” formulas. What that means is no one is turned away because of finances. As long as you apply for aid early--that usually means by early January for the following September semester--your aid package will fill the entire gap.

B is for Budget, Bargain and Borrow

One of the many things parents don’t know about financial aid is that it is not designed to simply cover the cost of tuition and fees.

Aid packages are expected to address the total cost of college, which includes room, board, books and incidentals. Where tuition, fees and book expenses are fairly tangible, the cost of a student’s room and board, transportation and other expenditures--which are all figured in when determining how much aid you need--are estimates. And sometimes they’re high--or take into account costs that you simply take for granted.

“Colleges don’t want to be under when they estimate the costs,” says David Jaffe, author of “The New College Financial Aid System: Making It Work for You,” and president of College Pursuit, a New York-based education consulting firm.

Consider a hypothetical Sally Scholastic who decides to attend USC. Tuition and fees for this private university run $17,560 per year, according to the College Board’s College Costs & Financial Aid Handbook. Students spend another $600, on average, on books and supplies; $6,482 on room and board; $580 annually on transportation and $1,630 on “other.”

But Sally is on a budget and she lives only a few blocks from campus, so she decides to commute, riding her bike to and from classes. Mom and Dad have been paying for Sally’s room and board for years, so it doesn’t strike them as some new expense. Nevertheless, the university’s cost calculation--and the aid formula--allows for $1,610 in housing expenses and $940 in transportation costs for commuters. Sally’s family gets credit for $2,550 in “contributions” to her education expenses, even though they’re not doing anything new by allowing her to live at home.

Similarly, if Sally had chosen to live on campus, the aid formula would have granted her a $6,482 housing allowance. If she found a cheaper apartment, she could shave her real costs by a substantial amount. Since those savings don’t reduce the amount of aid she gets, it simply reduces the amount she and her family have to kick in to pay for college.

What if the amount they say you need to pay is simply out of reach even when accounting for some savings? Or the aid package they’ve come up with is untenable for some other reason?

Bargain, says Jaffe.

“You need to approach college costs like you would approach buying a car,” he says. “The biggest mistake that most of us make is not to remember that they are the 13th-biggest industry in the country.”

Good students who have been accepted to numerous universities can simply play one university’s aid package off another’s, adds Kalman A. Chany, author of “The Princeton Review Student Access Guide to Paying for College,” and president of Campus Consultants, another New York-based aid consulting firm.

“Gee,” Sally might say to her financial aid counselor. “I sure like USC, but Princeton has offered me $3,000 more in scholarships than you have. Is there any way to make your aid package look more like theirs?”

Sometimes, the response shows the student has some bargaining power. Colleges compete for top students as well as athletes for a variety of practical reasons, including the fact that they lend prestige, which makes it easier to recruit new students and to raise funds from proud alumni.

But if all else fails, parents--and students--can resort to borrowing.

Loans range from the low-cost federally guaranteed loans to students to the higher-cost, but virtually unlimited, parent’s loans.

As long as the student is making academic progress, more loans are likely to be offered every year the child is in school. Rates are relatively reasonable, starting as low as 5% and capping out at about 9%. And terms are decidedly generous. Many of these loan programs allow you to defer payments until six months after graduation. If the child is unable to work, or opts for graduate school, payments can usually be deferred again.

The catch: Unless you consolidate, each loan you take out requires a separate payment. And it can take a decade or more to pay off a sizable student debt.

On the bright side, students who handle these loans wisely establish a credit history to help qualify for credit cards and mortgages down the road. Handle the student credit poorly, however, and it may ruin your credit, make you uninsurable and hurt your job prospects.

C is for Cutting Costs by Cutting Classes

If you cut classes in high school, you get in trouble. But do it in college and you could save money.

How so?

College tuition is generally based on “per unit” costs. To graduate, you need a minimum number of units. Some of those units must be earned attending classes specific to the degree you wish to earn. Others are simply general education requirements that don’t specifically pertain to your major.

In many cases, where you earn those general education units doesn’t matter. You can earn them by taking Advanced Placement classes in high school, attending a junior college or by taking a test. The fact that you satisfy these requirements outside of the university system generally does not affect how quickly you graduate or the imprimatur on your degree.

If, for example, you attend a junior college for two years before transferring to Princeton, your degree still carries the Princeton label. There’s no need to mention on your resume, in job interviews--or polite conversation--that you only attended an Ivy League school for your last two years of study.

Still, it could save you a fortune.

Consider Craig Costcutter, an imaginary Los Angeles-area resident with good grades and dreams of one day attending Harvard in Cambridge, Mass.

If Costcutter goes directly to Harvard, he’ll spend roughly $19,820 annually on tuition, $6,410 on room and board, $1,600 on transportation (including flights home) and $1,920 on other expenses, according to the College Board. Grand total: $29,750 a year or a whopping $119,000 over his four-year course of study.

What happens if Costcutter spends his first two years of study at Pasadena City College, while living at home? He saves a spectacular $52,990--or more.

That’s because the cost of tuition, fees and books at PCC amounts to just $880 a year. Living expenses for commuters--the ones some parents might argue aren’t college expenses at all--add another $2,375, for a total cost of just $3,255 annually.

The savings are not as dramatic, but high school students can whittle down their college costs by taking Advanced Placement courses, too. These courses can give you both college and high school credit.

It’s difficult to take enough Advanced Placement classes to shave more than a semester off your college stint. But if you’re going to a university that charges $300 per unit--which isn’t unusual these days--each transferable three-unit Advanced Placement course saves you $900. If you accumulate 18 units, your savings at $300 a unit amount to $5,400.

Finally, some students can also earn college credits by simply testing out of certain classes. Not all universities offer this option, but those that do usually give students academic credit if they’re able to demonstrate proficiency in certain subjects by taking standardized tests, such as the AP and CLEP tests administered by the College Board. Those who pass the tests are simply allowed to skip the classes they test out of and either graduate with fewer units or get unit credit for classes not attended. That reduces the overall costs.

Older students, who have spent several years working or raising children, may also be able to skip subjects by proving that their life experience has taught them enough to forgo some required courses. Required essays or oral presentations can be well worth the saving in time and money.

Remember: If you are uncertain about the information you are receiving from a high school or junior college counselor, call the admissions office, financial aid office or an academic counselor at your target school. Policies can change and you do not want to miss any opportunities. Make up a list of what you want to know and ask. In this case, a shy, unassuming manner isn’t cute. It’s costly.

* THREE FAMILIES’ SAVINGS STRATEGIES D2

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What Parents Could Give Up Now

Many parents assume they’ll need aid and loans to finance college because horror stories have convinced them they can’t afford to pay education expenses as they go along. This may be true for private schools, but in-state public schools are much less expensive. What could parents give up to pay the average cost of tuition, fees, books and supplies? Here are some examples, using the College Board’s cost figures for the 1994-95 academic year:

Two-year public:

Dining out once weekly

Annual cost: $1,864

Monthly cost: $155

Four-year public:

Hawaiian vacation

Annual cost: $3,264

Monthly cost: $272

Two-year private:

Country club membership

Annual cost: $7,063

Monthly cost: $589

Four-year private:

Vacation home

Annual cost: $12,294

Monthly cost: $1,024.50

Options for Parents Who Plan Ahead

Stage 1

Child’s age: 0-7

* Start small but start early.

* Invest aggressively.

* Consider pros and cons of saving in child’s name.

* Consider shortening mortgage loan period

* Sock away funds for parents’ retirement.

Stage 2

Child’s age: 8-13

* Diversify college investments.

* Shift new funds into parents’ account.

* Prepay mortgage as possible.

* Check on ability to borrow from parents’ 401(k) plans.

* Encourage good grades and academic achievement.

Stage 3:

Child’s age: 14-18

* Shift some savings into safer, more liquid investments.

* Stress grades and extracurricular activities.

* Find out how financial aid “need” is determined.

* Structure financial life to better qualify for aid.

* Apply for aid early.

* Apply for private scholarships, grants and loans.

* Consider advanced placement courses.

* Consider junior colleges.

* Check your credit rating.

* Put your child on a budget.