WHEN her eldest son decided to apply to a small, private university, where tuition runs around $25,000 a year, a local newspaper editor, who is divorced, didn't know how she'd be able to foot the bill on her salary.
But with the help of a financial planner, she received about $75,000 in grant and scholarship money. The woman (who asked that her name not be used) has paid about $8,000 out of her own pocket. And her son will graduate this June from the Massachusetts school with only about $8,000 in loans.
''We were absolutely amazed,'' she says.
More than half of all college students receive some form of financial aid through loans, grants, scholarships, and work-study programs. The majority of all aid now comes in the form of loans - most from federal funds. (See chart.)
This represents a shift from a decade ago, when students typically received half their funding from grants and half from loans, according to the College Board. Part of the reason for the change is that the grant money has not kept up with the skyrocketing cost of college.
Because Congress expanded eligibility in 1992, any family can qualify for a federal loan regardless of income. Still, many people rule out applying for aid, believing that their income or assets will disqualify them.
''The theory is the money goes to people who need it. The reality is it goes to people who successfully navigate the system,'' says Kalman Chany, author of ''The Princeton Review Guide to Paying for College.''
''Families should not be threatened by the process,'' says Barry McCarty, director of financial aid at Lafayette College in Easton, Pa. ''[But] sometimes, because of their haste and not reading instructions carefully, they occasionally penalize themselves.''
But competition for aid is stiff. And with most application deadlines in mid-February, now is the time to get busy.
All information about what forms to fill out, where to get them, and their deadlines is located in the financial-aid section of the admissions application.
At the very least, you will have to complete the Free Application for Federal Student Aid (FAFSA). By filling out this form, you automatically apply for federal financial aid. Rule No. 1: Do not wait until the student is accepted to the college to apply.
The federal government uses the FAFSA to determine your expected family contribution (EFC) - the amount your family can afford to pay each year toward the cost of college.
The college uses this number to calculate the total aid package a family is eligible to receive by taking the difference between the cost of attendance (which includes tuition, room and board, books, transportation) and what the family is expected to pay.
More than 400 schools also require a new form this year called the Financial Aid Profile, developed and processed by the College Board. This form asks more detailed information about a family's finances. Private colleges, which tend to have more of their own money to give out, generally use this form because they believe it better estimates how much a family is able to contribute.
To fill out either the FAFSA or Profile for the 1996-97 school year, parents will use their 1995 tax information.
Obviously, income is a major factor in determining aid. A family with $40,000 in gross income, for example, has an expected family contribution of $3,300; a family earning $80,000 a year will have to kick in $14,000.
But other factors influence aid, such as assets, unemployment, divorce, high medical expenses, and the number children in college concurrently.
''One of the glaring myths is that families with over $90,000 in income rarely demonstrate financial need,'' says Mr. McCarty of Lafayette.
''Need-based aid does go to families with six-figure incomes on occasion when there's more than one student in college. It won't if there's only one in college,'' says Barbara Tornow, director of financial assistance at Boston University.
If families do have special circumstances, they should include a separate letter with the aid application explaining the situation in more detail, says Bonnie Hepburn, founder of Moneysense Financial Planning in Acton, Mass., which specializes in college funding.
Another fallacy is that families who save in advance will get less financial aid. It's true that they may get less aid, says Diane Saunders, spokeswoman for Nellie Mae, the largest nonprofit provider of federal education loans. ''But what families don't want to hear, or are not hearing, is that financial aid is primarily loans,'' she adds.
Generally, a typical aid package for lower-income students is 70 percent loans and 30 percent grants, Ms. Saunders says. For middle-income families it tends to be nearly all loans.
Yet, at many institutions with large endowments, more than half of the aid is in the form of grants - 90 percent of which comes from the schools' own funds, Ms. Tornow says.
Evaluating a package
When comparing offers, don't look at the total amount but at how much is gift aid versus loans.
''Some people say they are getting more aid at one school, but maybe [the package] has much more loans and work-study and lower grants,'' Mr. Chany says. ''Or maybe they got more aid, but the school is far more expensive.''
Most schools tend to give out federal aid before they dispense their own aid, according to financial planners. This means the first $4,000 to $6,000 of aid a student is eligible to receive is met through student loans and college work-study. Any additional money then comes from grants.
Evaluating how much debt a student should take on is difficult. The average student graduates from a four-year college with between $10,000 and $15,000 in debt, according to Nellie Mae.
The lender recommends that students not go above an 8 percent loan-debt-to-income ratio.
Many financial planners advise students to take the federal Perkins loan or the subsidized federal Stafford loan if they are offered them.
Both these loans are interest-free while the student is in school. Ms. Hepburn calculates that a student who borrows the maximum on a Stafford loan of $17,125 over four years will save $2,809 in interest.
The interest rate on federal Stafford loans is variable, but is capped at 8.25 percent.
Since families must reapply for financial aid each year, there is no guarantee a family will receive the same package, aid officers say.
Some schools tend to give more grant assistance in the student's freshman and sophomore years. They often reduce the grants and increase the amount of loans and work-study in the junior and senior years when the student is more secure.
Some financial planners advise parents to negotiate with the school if they feel the amount of aid doesn't meet their needs. One of the bargaining chips, they say, can be a rival school's financial-aid package. But many colleges and universities don't take too kindly to such strategies.
''What we tell students is that we will reevaluate ... but to me reevaluation is very different from negotiation,'' Tornow says. ''I'm not interested in having a student bring me an award letter from another institution and saying, 'Match that.' ''
Everyone tends to look to private scholarships for money, Chany says. Yet they account for only 1 percent of total aid and are usually small, ranging between $500 and $2,000. Grant awards, such as the National Merit Scholarship program, equal big bucks. But the competition is fierce. Students, Chany says, have a better chance getting local awards. But there's a flip side to such success, he adds: ''The school simply says, 'Great, now we're going to cut your aid.'