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According to Liz Pulliam Weston in her article How to find free money for college, Federal and state grants serve as the biggest source of direct student aid. Here’s where to find funds for college and how to get them:

The best money is free money, especially when it comes to paying for a college education. And the biggest sources of free money these days are federal and state grants.

While scholarships make up less than 2% of student aid, grants make up nearly 40%, with loans filling in the rest.

Grants are a much better deal than loans, of course, since you don’t have to pay the money back.

Grant money, however, is usually based largely on need and is often parceled out on a first-come, first-served basis. That’s why it’s important to apply early for financial aid and be aware of any available grants that might help lower your overall college contribution.

Four types of grants

First, the major types of grants:

• Federal Pell Grants. By far the largest grant program, Pell grants range from a few hundred dollars to several thousand dollars. These grants are based solely on need, as determined by the student’s college of choice using federally approved guidelines. Eligible colleges receive a fixed amount of Pell money each year; once it’s gone, it’s gone, which is why it can pay to apply for aid early.
• Federal Supplemental Education Opportunity Grants. These grants of $100 to $4,000 are reserved for the neediest of students. As with Pell grants, students apply through their colleges’ financial aid offices.
• State grants. Most states have some kind of free-money program — again, often based on need, although some programs are also targeted to encourage study in certain areas, such as teaching or nursing. California has 3,000 Cal Grants for future teachers, for example, which must be repaid if the student doesn’t end up teaching in a low-income area for at least one year for every $2,000 received. Meanwhile, Ohio’s main grant program targets its lowest-income residents; once you make more than about $35,000 with one child, your eligibility for the $174-to-$5,466 grants can disappear. To find these grants and how to apply, check the Web site for your state’s student aid or higher education commission.
• Institutional grants. These grants come from the colleges themselves, and they are handed out when federal and state aid isn’t enough — or when the school is trying to discount its sticker price enough to attract a desirable candidate. Sometimes, colleges will substitute grants for loans to sweeten the deal for a sought-after student.

Typically, you don’t apply for these grants. But students can increase their chances for an attractive financial aid package by targeting schools that are likely to want them, rather than fighting to be admitted to a school that has plenty of other choices.How can you improve your chances of getting a grant? The first step is filling out the Free Application for Federal Student Aid, which is available at high schools and college financial aid offices, at various places on the Internet or by calling the U.S. Department of Education at (800) 433-3243.

The earliest you can submit your form for the next school year is Jan. 1. And it’s smart to file as soon as possible, since many colleges’ student aid deadlines are in early to mid-February, and their reserves of grant money may have dwindled substantially by the time they actually stop accepting applications.

The FAFSA requires copies of your previous year’s tax return. If you don’t have that ready, but you can include a return with estimated numbers and update them when you get better numbers.

Top forms

Your form will be sent to a federal center for processing. Once the numbers are crunched, you’ll be sent a form showing how much you’re expected to contribute toward a college education. This is the figure your college will use as a starting point to build your financial aid application. Many colleges require other forms or information when handing out their own aid. If your college requires the PROFILE form, for example, you can pick that up at its financial aid office or most high schools’ guidance offices. You’ll be sending it to the College Scholarship Service, which does the number crunching. For state aid, you may need to send in yet another form. State student aid offices will have details.

For more information on financial aid, you can visit the Sallie Mae “wired scholar” site or the Department of Education site.