How to Scrape Together Cash for College

The recession knocked the traditional model on its head. Figure out who still has the money to help you

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Back when jobs were plentiful, investments were growing nicely, and borrowing was easy—the good old days of 2007 and 2008—students and parents could generally cobble together the $18,000 or so annual cost of a year at a public university using some variation of the oft-recommended "thirds" strategy: one third from savings, one third from debt, and one third (about $500 a month) out of the family paychecks.

But how can they scrape together tuition money now that the bear market has wiped out savings, banks are too scared to make loans, and layoffs have eliminated millions of high-paying jobs?

Simple: When there are fewer fish in the ocean, fishermen have to work harder and cast their nets wider. There are many new opportunities to get free cash for college, as you'll see below, or low-cost loans, as you'll see in the following article. The saviors are the federal government, some increasingly generous colleges, start-ups, and new sources of unexpected generosity. Rapper, for example, made headlines this year when he gave away four full scholarships on the The Oprah Winfrey Show. His foundation plans to give away more money in the future.

"There are some hopeful things happening," says Kal Chany, author of Paying for College Without Going Broke. "The path may be more difficult. But you can still get to the final destination"—a college degree.

Helping hand. You can indeed, says Karisha Sutton, a B-plus high school senior from Columbus, Ohio, whose dad's disability prevents him from working and whose mom works as a home health aide. Sutton was about to give up on going straight to college because her family couldn't afford the few thousand dollars it would cost to send her to a nearby state university. But then she heard about the University of Toledo's offer of free tuition to low-income students from several areas of Ohio, including Columbus. Newly hopeful, she filed several last-minute scholarship applications. A thick acceptance letter from Toledo and a few private scholarships have turned her into an excited student and aspiring doctor. Now, she tells her friends who are feeling discouraged: "Don't just give up!"

Students and parents should be realistic, though. Raising the cash you need to pay for college isn't getting easier. Tuition at the average public university has more than quadrupled in the past 20 years, rising to nearly $7,000 a year. Add in dorms, books, travel, etc., and the sticker price for a year at a local public college now exceeds $18,000. A year at some of the "public Ivies," such as the University of California-Berkeley, can cost more than $28,000. Those prices will most likely rise, as recession-socked states such as California and Florida are planning hefty tuition increases. Meanwhile, the average cost of a year at a private college now exceeds $37,000.

In the past, scholarship money made it possible for about half of all public university students to cover most of their tuition with free money. And three quarters of private school students got scholarships that knocked, on average, about $10,000 a year off their bills.

But this year, many legislators looking to reduce budgets are focusing on expensive programs such as Florida's Bright Futures scholarships that pay tuition for good students. And many foundations have reduced the number of scholarships they award.

So students who need some help to pay their tuition might want to look beyond some of those traditional sources of college cash. Here's our best advice on where to look now:

Go where the money is. While many states are cutting education budgets, the federal government has dramatically boosted aid for students. For the 2009 and 2010 tax years, anyone who earns less than $80,000 ($160,000 for a couple) a year is eligible to get $2,500 back from the IRS for the first $4,000 spent on tuition and fees—for the taxpayer as such, or for each of his or her kids.

The Obama administration plans to raise the Pell grant, which is the single biggest source of free money for low-income students (generally, students from families earning less than $50,000 a year). Obama is proposing to raise the maximum grant for the fall of 2010 by $200, to $5,550, and to escalate it automatically with inflation after that. To qualify for the Pell and most other federal aid programs, students must fill out the Free Application for Federal Student Aid, or FAFSA, each year, preferably as early in the year as possible.