With the price of education so high, surely schools don't expect you to pay that much without a little help ... do they? Well, no, and yes.

Most financial aid is offered in the form of loans -- not scholarships or grants. While a college education is often worth the debt, factor the need for loans into your choice of schools. A high price (and highly leveraged) degree doesn't necessarily lead to a better career.

That said, there are plenty of scholarships and grants available. To get a slice of that "free money" pie, you'll have to demonstrate need (show that your income and assets couldn't cover the costs without undue hardship) or exceptionality (prove your intelligence, talents, ethnicity, gender, or background make you an attractive addition to the student body), or both.

If you take just one lesson away from this article, let it be this: Don't smoke! It's harmful to your health and net worth, and it makes your breath stink.

And if you take away two lessons, take this: You don't have to be "needy" to get need-based aid. Many factors determine your eligibility for aid, such as the cost of attending a school, the number of family members in college, and how much the school wants you. So don't assume you won't be eligible for financial aid.

How need is determined
Financial aid applicants must fill out several forms and reveal information about family income and assets. The most important form is the Free Application for Federal Student Aid (FAFSA), administered by the Department of Education. Uncle Sam begins accepting FAFSAs on Jan. 1 of the year a student expects to enter college.

The FAFSA requires information from your tax return from the preceding year, so you'll have to complete your return beforehand. (You don't have to file your return; you can just keep it until April 15 if you owe money.) If you have questions, call the Department of Education's Federal Student Aid Information Center at (800) 4-FED-AID. Visit fafsa.ed.gov to file your FAFSA online.

Many schools (notably private universities) require additional forms. Ascertain the application deadlines from the schools to which you're applying, and -- come Hel (the Norse queen of the underworld) or high water -- do not miss them.

Once your information is processed, out comes a magic number: the Expected Family Contribution (EFC). This is how much -- according to various formulas -- your family should be able to contribute to a post-secondary education. That amount is then subtracted from the cost of attending a particular school, and -- voilà! -- the result is how much aid you'll need.

So, if it will cost $12,000 a year to attend a school, and your EFC is determined to be $7,000, you'll receive an aid package worth $5,000. If the cost is $30,000 annually, your aid package will be worth $23,000. Simple as that ... with these two caveats:

  1. "Cost of attendance" includes tuition, room and board, textbooks, fees, and estimated living and travel expenses. How these costs are determined vary widely from school to school.

  2. Some schools practice "gapping," which means they won't offer an aid package that covers 100% of the difference between the cost of attendance and the EFC. So, you'll have to fill a "gap" between your EFC and their aid package.

Still, it's encouraging that, in most situations, a school will help you find a way to cover the costs.

Position your finances
There are many perfectly legal ways to put your finances in an uglier light -- and the uglier your finances, the more need-based aid you're likely to receive. When it comes to rearranging your balance sheet, note this important principle: The income figures used in the various financial aid formulas are from the previous year, and the asset figure is as of the filing date.

For example, let's say your student will be a college freshman during the 2004-2005 academic year. As you complete the FAFSA (and other forms, if required) all the questions about income will be about the previous year (2003). However, all answers to questions about assets will be based on your balance sheet as of the moment you sign the forms.

It's too late to do much about your income for 2003, but you have until you file your application to play with your assets. Here are some aid-enhancing strategies:

  • If you anticipate making a big-ticket purchase, do it before applying for aid. For example, if your car is on its last wheels, and you plan to buy a replacement soon, then do so before you sign the FAFSA in order to reduce your financial assets. Note: You may not use this "make big-ticket purchases" strategy as an excuse to buy a recreational vehicle with a Jacuzzi.

  • Contribute to retirement accounts. Most schools do not factor in retirement assets, so moving money from your bank account to an IRA will shelter some assets. And you should be saving for retirement anyhow. What, you think Social Security will take care of you? (Evil laughter fills the room.)

  • Use assets to pay off debt. Not only is getting rid of consumer debt -- such as credit card balances and car loans -- good for your overall financial health, but doing so with extra cash lying around will reduce the assets used in financial aid formulas.

You have to apply for financial aid for each year of attendance; this isn't a one-shot deal (unless you can figure out a way to earn a degree in 12 months). Find out how much of your aid you can expect to be renewed.

Winning scholarships
There are entire books and businesses devoted to helping students get scholarships from sources outside the government and universities. Thousands of organizations -- from service groups to multinational corporations -- offer scholarship money. Though competition for these resources can be intense, it still can be worthwhile to look for scholarships -- especially if you don't expect to qualify for other forms of aid, or your package consists solely of loans.

Where can you find scholarships? As with most of life's enduring mysteries, the best place to look for answers is the Internet. You can find free scholarship search services at Collegeboard.com, FastWeb.com, WiredScholar.com, and FinAid.com. Also, there are several helpful books, such as How to Go to College Almost for Free.

To increase your chances of winning a scholarship, start local. You'll have a better chance of getting a scholarship for students in your city (which will have fewer applicants) than winning a nationwide competition. Also, start early -- even before your junior or senior year of high school. Many scholarships are open to students of all ages.

For more on funding your way up the Ivory Tower, visit our College Savings Center, or check out The Motley Fool Guide to Paying for School: How to Cover Education Costs from K to Ph.D.

Robert Brokamp is co-author of The Motley Fool Personal Finance Workbook and author of The Motley Fool's Guide to Paying for School: How to Cover Education Costs From K to Ph.D. The Motley Fool is investors writing for investors.