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Funding Resources


Two good places to start for gathering information about financial assistance are high school guidance counselors and financial aid offices at the colleges you or your child plans to attend. Before you begin any college savings or investment programs, you may wish to consult your tax advisor and financial professional about the tax benefits and other consequences of various programs.

This section gives on overview and lists information resources about five of the main categories of college funding and tax benefits for education; this list is not comprehensive:


  1. U.S. Department of Education: Grants, Loans, and Work-Study
    Each year the Department publishes a comprehensive resource guide on grants, loans, and work-study, available through the U.S. Department of Education’s Federal Student Aid office. The guide is entitled Funding Education Beyond High School: The Guide to Federal Student Aid. You can read the guide online and download it at http://studentaid.ed.gov/students/publications/student_guide/index.html; 2007—2008 and 2008–2009 editions are available in Spanish and English (see also www.FederalStudentAid.ed.gov). According to the guide, in 2006 the U.S. Department of Education provided nearly $78 billion in student financial aid in the form of grants, low-interest loans, and work-study, and about 10 million students benefited from this aid.

    (Note: To apply for federal aid and to apply for many state student aid programs, students must complete a Free Application for Federal Student Aid (FAFSA), available at http://www.fafsa.ed.gov. For more information, visit www.edu.gov and call the Federal Student Aid Information Center at (800) 433-3243.)

    1. Federal Grants. Four types of federal student aid grants are available.

      • Federal Pell Grants are usually awarded only to undergraduate students.

      • Federal Supplemental Educational Opportunity Grants (FSEOG) are for undergraduates with exceptional financial need. This grant gives priority to Federal Pell Grant recipients; funds depend upon the availability at a particular school.

      • Academic Competitiveness Grants (ACG) are for undergraduates receiving Pell Grants who are U.S. citizens enrolled full-time in their first or second year of study.

      • National Science and Mathematics Access to Retain Talent Grants (National SMART Grant) are for undergraduates receiving Pell Grants, who are U.S. citizens enrolled full-time in their third or fourth year of study in specified math, science, technology, or foreign language majors.

    2. Federal Loans Four types of federal loans are available. (State education loans and private consumer loans to students may also be available in your state; contact your local bank or college financial aid office.)

      • Federal Perkins Loans. Payment is owed to the school that made the loan.

      • Subsidized Direct or FFEL Stafford Loan. The U.S. Department of Education pays interest while the borrower is in school and during grace and deferment periods.

      • Unsubsidized Direct or FFEL Stafford Loan. This loan is unsubsidized, and the borrower is responsible for interest during the life of the loan.

      • Direct or FFEL PLUS Loan. This loan is available to parents of dependent undergraduate students. The PLUS Loan Program is now also available to graduate and professional degree students. This loan is unsubsidized, and the borrower is responsible for interest during the life of the loan.

    3. Federal work-study (FWS). This money is earned while attending school and does not have to be repaid. It is for undergraduate and graduate students. Jobs can be on campus or off campus.

  2. Family Funds: 529 Plans, Coverdell Education Savings Accounts (ESA), and Cash Accumulation in Life Insurance Most government and private funding sources require the student’s family to make some financial contribution towards the student’s education. The amount a family is expected to contribute—the “expected family contribution” (EFC)—is based on household size, income, assets, etc. Your EFC is determined by filling out a FAFSA (Free Application for Federal Student Aid) form available online from the U.S. Department of Education at www.fafsa.ed.gov.)

    1. Section 529 qualified savings tuition plans. A 529 plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. As long as the plan satisfies a few basic requirements, Section 529 of the Internal Revenue Code provides special tax benefits to the plan participant. For more information, visit http://www.savingforcollege.com/college_savings_201/.

    2. Coverdell Education Savings Account (ESA). A Coverdell Education Savings Account is an account created as an incentive to help parents and students save for education expenses. For information, visit http://www.irs.gov/newsroom/article/0,,id=107636,00.html.

    3. Cash accumulation in permanent life insurance. When purchased early in a child’s life, universal life and whole life policies can accumulate significant cash values at a relatively low cost. Even if started later in the child’s life, adequate cash build up is still possible with proper funding. The cash values in a life policy can offer you tax-deferred growth, competitive interest rates, and the option to withdraw or borrow* available cash for many situations, including education. In the event of your untimely death, the proceeds from life insurance can protect your family's financial security and help ensure that your children reach their educational goals.

      *Both withdrawals and loans from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit.  Assuming a policy is not a modified endowment contract (MEC), loans are free from current federal taxation, and withdrawals are taxed only to the extent that they exceed the policyowner’s basis in the policy. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy, and taxable distributions are subject to a 10 percent additional tax, with certain exceptions. Consult your tax advisor for more information.

  3. Scholarships The College Board Scholarship Handbook 2008 identifies 2,100 private, federal, and state college funding sources for your college education. Eligibility indexes help match you to scholarships that you may qualify for based on state of residence, religion, ethnicity, field of study, and more. For more information, visit http://store.collegeboard.com/productdetail.do?Itemkey=007158

  4. Student Employment Part-time employment, on or off campus, can be a valuable source of income and work experience. Financial aids offices and/or student employment centers at colleges typically post a variety of employment opportunities. (See also federal work-study in no. 1.c above.)

  5. Federal Tax Benefits for Education IRS Publication 970, Tax Benefits for Education: 2007, is available for reading and downloading at http://www.irs.gov/pub/irs-pdf/p970.pdf. This publication provides information on the following topics, among others:

    1. Scholarships, fellowships, grants, and tuition reductions
    2. Hope credit
    3. Lifetime learning credit
    4. Student loan interest deduction
    5. Student loan cancellations and repayment assistance
    6. Tuition and fees deduction
    7. Coverdell Education Savings Account (ESA)
    8. Qualified Tuition Program (QTP)
    9. Education savings bond program