"Let's say you have $10,000 in cash, and $10,000 in credit card debt, and $100,000 in assets," Chany says. "If you plan to use the cash to pay off the debt, but you turn in the (FAFSA) forms beforehand, you're going to be assessed for that cash. But if you pay off your debt before you turn in the form, you could be eligible for more aid."
Enlist help from relatives
"Grandparents can gift money to 529 accounts without having the same restrictions on gift tax that you would have on other types of financial gifts," says Darrell Canby, president of Canby Financial Advisors in Framingham, Mass.
The financial aid website FinAid.org reports that individuals can give financial gifts up to $13,000 per year per beneficiary to a 529 plan without paying a gift tax. For married couples, the benchmark is $26,000.
All 529 plans come with an additional caveat that allows donors to give a financial gift of up to five years' of funds at a time -- $65,000 for individuals, $130,000 for married couples -- without incurring gift tax as long as the total amount of the gift averages out to $13,000 per year over a five-year period. That means that if a relative donates $50,000 to your child's 529 in 2011, he can only donate $15,000 over the next four years.
Maximize your income
In addition to limiting post-college loan payments, there are several programs designed to help low-income borrowers make it through school. According to FinAid.org, parents with an adjusted gross income of $50,000 or less who live in households where all family members are eligible to fill out an IRS 1040A or 1040EZ form can apply for a simplified needs test, which removes assets from the federal needs formula and makes applicants eligible for more aid.
Parents who gross under $30,000 per year automatically have an expected family contribution of zero and are guaranteed to receive the full Pell Grant. Parents also can maximize their income by taking advantage of matching-grant programs available through 10 state 529 plans. To receive the match, parents kick in a certain level of savings -- usually up to $500 -- and receive some level of state contribution.
Find the right schools
To make paying for college a bit easier on the wallet, investigate tuition-free institutions such as the Cooper Union* for the Advancement of Science and Art in New York, the Webb Institute in Glen Cove, N.Y., and Franklin W. Olin College of Engineering in Needham, Mass., as well as any of the seven work colleges through the U.S. that offer free or reduced tuition in exchange for student work.
Students can also check out "no loans" schools that promise to fulfill a student's determined financial need through grants, scholarships and work-study jobs without forcing them to take out student loans, according to the college-accessibility think tank, Project on Student Debt, in Oakland, Calif.
*The Cooper Union recently changed its policy and will begin charging tuition to freshmen starting in fall 2014.