college

Financial aid for middle-income families

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Highlights
  • Consider applying at private schools, where you may qualify for aid.
  • Don't overlook the tax credits that apply to tuition, books and supplies.
  • If you don't qualify for need-based aid, apply for merit-based aid instead.

Students from low-income families get need-based scholarships. Students from high-income families don't need it. But paying for college may be most challenging for those in the middle. Fortunately, there are financial aid programs designed specifically for students from middle-income families who may not qualify for need-based aid at every school. Look in these three places to find it.

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Pricey colleges

A student who doesn't qualify for need-based aid at one school might qualify at a pricier institution, says Sally Donahue, director of financial aid at Harvard College. Since financial need is determined by a family's income and assets relative to the total cost of the college, a student who doesn't receive any financial help at a $10,000-per-year school could qualify for significant need-based aid at a $50,000-per-year institution.

"We have probably 600 families with incomes over $180,000 receiving grant aid right now, and that's usually because they have two or three students in high-cost colleges," says Donahue. "It just depends on where you go."

In addition to applying for need-based aid, regardless of your income, Donahue also recommends that students research "no-loan" schools such as Harvard that fulfill 100 percent of a student's determined need through nonrepayable grants, scholarships and work-study income rather than loans. A study by the Institute for College Access and Success, a higher-education think tank based in Oakland, Calif., shows that more than 50 schools nationwide have no-loans policies, though most are only offered to families with combined incomes of $50,000 per year or less. Some of the priciest institutions, including Amherst College, Vanderbilt University and Bowdoin College, offer no-loans packages to all students, while such schools as Cornell University guarantee that families with incomes under $120,000 will only take out $3,000 per year or less in student loans.

Tap tax credits

For middle-income families, 2011 is the year to cash in on tuition tax credits. The American Opportunity Credit, which was recently extended through 2012, offers families a tax credit of up to $2,500, provided that they spend at least $4,000 per year on qualified expenses, such as tuition, books and supplies, according to the Internal Revenue Service. The credit applies to 100 percent of the first $2,000 spent on tuition, fees and course materials during the taxable year, plus 25 percent of the next $2,000. It's available for students in the first four years of post-secondary education who are enrolled at least half time and who come from families with combined gross incomes of $160,000 or less ($80,000 for a single filer).

Part-time students and those attending school for longer than four years can cash in on the Lifetime Learning Credit, which reimburses 20 percent of your college expenses up to $10,000.

"(Tax credits) don't really help you pay the bill now," says Carol Stack, co-author of "The Financial Aid Handbook." That's because to get tax credits, families still need to front the money and don't get the credit until after filing taxes. "It helps, but only a little."

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