Now, it's time to piece together every resource that can help you finance your education. This section identifies many of the sources and programs available to you and your family, including some tax credits and deductions that relate directly to education. Loans are presented separately in the next section.

Savings & Investments

Some people start planning for their children's college on the day they're born. If you are one of those lucky students, you may have some of the following financial resources available to help pay for your education.

College Savings Plans (State)
Tax deferred savings; variable limits; educational use only; investor controlled; withdrawals taxed at beneficiary's rate.

Traditional IRA
No Penalty for early educational withdrawals; withdrawals are taxable; limited annual contribution.

Roth IRA
No penalty for early educational withdrawals; withdrawals ARE taxable if made before age 59 1/2; tax free after age 59 1/2; limited annual contribution.

Coverdell Education Savings Account
No penalties OR taxes for educational withdrawals; $2,000 annual contribution limit; no limit on annual withdrawal.

Custodial Accounts
Securities registered in child's name under the Uniform Gifts to Minors Act; irrevocable gift status means child controls disbursement; not limited to educational use; assets in child's name may affect eligibility for other federal aid.

Standard Savings Accounts
No tax benefits; may accrue interest over time; no limits on use or contribution; assets in child's name may affect eligibility for other federal aid.

Grants & Scholarships

Grants
A grant is money that never has to be repaid. Unfortunately, only two federal grant programs exist, and both are based on financial need. The Federal Pell Grant can only be awarded to undergraduate students who have not yet earned bachelor's or professional degree. Pell Grants are based on financial need as determined by information provided in the FAFSA.

A second federal grant, the Supplemental Educational Opportunity Grant, is reserved for students who show exceptional financial need and a limited family contribution.

Like grants, scholarships represent funds that do not have to be repaid. But, unlike grants, there are a wide variety of scholarship sources, many of which are awarded based on achievement rather than need. The chart below describes common sources for scholarships and may provide you with ideas for conducting your personal scholarship search.

Private Scholarships
Available from various sources outside the school you will be attending. Many are awarded based on grades, academic and athletic achievement, need, special interests, club affiliations, etc. The following institutions provide the bulk of private scholarships: Employers, Corporations, High Schools, Civic/Community Clubs and Associations.

College Scholarships
Many schools offer their own set of scholarships. These are often used to entice enrollment at their schools. Many schools will notify you of your qualification for such scholarships after they receive a copy of your Student Aid Report, and will include such information in your financial aid award letter.

Military
All branches of the armed forces offer scholarship and financial assistance. Check with individual branches for complete details.

There is no limit to the amount of scholarship money you can apply toward your college education, and in many instances, students can locate enough money to avoid the necessity of a student loan.

Here are a few Internet sites that may help you find additional information regarding financial aid, grants and scholarships:

Loan Forgiveness Programs for Teachers
To encourage individuals to enter and remain in the teaching profession, the Teacher Loan Forgiveness Program grants loan forgiveness of up to $17,500 for teachers in certain specialties, and up to $5,000 for other teachers who teach for five years in low-income schools and meet other requirements. Click here for more information.

Work Study Programs
The federal work study program allows students to work within an institution to earn money to pay educational expenses. These jobs also teach important time management skills and often introduce students to valuable contacts within the school. Pay is based on minimum wage standards, but varies by job and skill level. You should indicate your interest in work study programs when you fill out your FAFSA.

Tax Breaks
In addition to being able to deduct interest paid on student loans, the federal government offers two tax credits and one tax deduction to help families that are paying for higher education. These programs are the Hope Tax Credit, the Lifetime Learning Credit and the Tuition Tax Credit.

With the Hope Tax Credit, taxpayers can claim up to $1,500 per year for the first two years of college for each qualified student. With the Lifetime Learning Credit, taxpayers can claim up to $1,000 per household ($2,000 starting in 2003) for an unlimited number of years. The two credits may not be claimed in the same year, or in a year when a distribution is received from an Education IRA. Taxpayers who fall within certain income limits may be able to deduct up to $3,000 in tuition and related expenses. The deduction can't be combined with the Hope or Lifetime credit, or expenses paid with proceeds from a Coverdell Education Savings Account or U.S. Savings Bonds.

For advice regarding tax strategies specific to your circumstances, contact an accountant or tax planner. For more in-depth information regarding these programs contact our smartFUNDS office or the Internal Revenue Service. The toll-free smartFUNDS number is 1-800-330-8589. Our email address is info@smartfunds.net.

When you receive a scholarship, it reduces the amount of need based financial aid you are entitled to receive. That’s OK. The scholarships you receive serve to reduce the amount of money you’ll need to borrow.