Master the Financial Aid Process

Applying for financial aid can be intimidating and confusing. That's why so many scams offer to do the work for you -- for an up-front fee, of course.

There are legitimate services out there, too, but you could get the same information yourself free. For example, FAFSA.com (not to be confused with the Education Department's Web site) offers to complete and submit the FAFSA form for $80. FAFSA stands for Free Application for Federal Student Aid, and it is THE form when it comes to applying for federal financial aid (see below). It can be tedious to fill out, but note the key word: free. Remember that when considering any offers that require you to pay to prepare the FAFSA for you.

Also know that using one of these fee-based services won't necessarily increase your chance of getting funding. To make sure you get the most financial aid possible, learn about the various sources of aid and the application process. And don't delay.

"By completing the application early and in advance of state and school deadlines, students and families have a better chance of securing cheap or even free money for college," says Martha Holler, spokesperson for Sallie Mae, which provides education loans. The sooner you can apply the better, because aid is not an infinite bucket.

Sources of aid

Your final aid package could come from a variety of federal or state agencies, private lending institutions or, in the case of scholarships, your employer, club or church. The federal government provides the majority of financial aid -- about 66% annually. More than $94 billion in federal student aid was handed out for the 2005-06 school year, according to the College Board. The remainder of the aid comes from state agencies, private loans and scholarships.

Department of Education. Federal aid includes loans, grants and campus-based programs and is based, for the most part, on financial need rather than scholastic achievement.

There are three types of loans: Stafford student loans and PLUS loans for parents and Perkins loans for high financial need students. The Federal Pell Grant, which doesn't have to be repaid, usually is awarded only to undergraduate students based on financial need, cost of attendance and other factors. And for students eligible for the Pell Grant, the government introduced two new grants in 2006: the Academic Competitiveness Grant and the National SMART Grant. ( Find out more about these grants.)

Campus-based programs such as work-study let you earn money to pay for school. To receive any of these forms of aid, students must first fill out the Free Application for Federal Student Aid, or FAFSA, which is discussed below.

Federal agencies. U.S. government agencies such as the Department of Health and Human Services, the Department of Veterans Affairs and many others provide a variety of scholarships, loans and education benefits.

State agencies. Aid programs vary from state to state. For information, check with your state's education department.

Private loans. There are an abundance of private education loans from banks and lending institutions, that can be used to fill the gaps left by federal programs. Private loans rates vary, but generally reward customers with good credit, Holler says. Rates on these credit-based loans are based on the prime rate. Check with your bank or the national education lenders such as Sallie Mae, Nellie Mae and The Education Resources Institute.