As exhibit A, I give you freshmen from families earning $30,000 to $100,000. They’re attending private colleges and universities in slightly higher proportions than they did 15 years ago, according to economists Morton Schapiro of the University of Southern California and Michael McPherson of Williams College. Those at public institutions are increasingly choosing four-year schools over two-year colleges.

Wealthy kids are trading up, too. Those with good grades are clustering, first, in famous universities: Stanford, Duke, the Ivies and the “public ivies,” such as the Universities of Michigan (Ann Arbor) and Virginia (Charlottesville). And second, in first-rank private colleges, leaving second-tier schools behind. “It’s the Mercedes syndrome,” Schapiro says. The most competitive kids want degrees from big-name schools with graduates all over the world.

Rich kids, of course, can pay full freight. Here’s how the middle classes struggle to give their children the very best:

Federally insured student loans. The government saves its grants for the poor. If you’re middle class, federal aid means student loans. Freshmen can borrow up to $2,625, and larger amounts in later years. If you’re financially “needy,” Uncle Sam pays the interest while you’re in school. Otherwise, you pay–although nothing’s due until your studies are behind you. Current variable interest rate: 8.25 percent (that’s the cap; the rate can’t go higher, by law).

What makes you “needy”? You qualify if the cost of your college comes to more than you and your family are expected to pay. Your “expected contribution” derives from a federal formula that considers such things as income, assets, age, family size and each earner’s need for a retirement fund (chart). The gap between the expected contribution and the school’s total cost may be filled–or partly filled–with loans, college grants and a college job.

Since 1992, the formula for federal aid has excluded home equity. So middle-class kids look poorer on paper than they really are. This typically gets them more aid at public institutions but not at private ones. The private colleges usually count part or all of your home equity when awarding their own scholarship funds.

Federally insured Parent Loans to Undergraduate Students (PLUS). Since 1992, creditworthy parents have been able to borrow up to the college’s full cost, minus other aid received. You pay a variable interest rate, currently 8.98 percent (capped at 9 percent). To qualify for the maximum loan, pay off your consumer debts, says Jean Eddy, a vice provost at Northeastern University in Boston. You want to show the cleanest possible credit report.

College grants. Colleges offer tuition discounts, especially to students they particularly want. So apply to several competitive schools. Your favorite school may hike your grant if it sees that you’ve had a better offer from someone else.

Even rich kids get grants if they’re brainy enough to raise the college’s academic reputation. More than 1,300 schools give scholarships based solely on merit without regard to financial need, says student-aid expert Joseph Re. On average, Schapiro says, a second-rank college can lure a student away from a more prestigious school by offering $10,000 a year.

But if you apply for early admission, you may be less likely to get aid. Some schools target their money on bright students who play hard to get.

Personal investments. Smart parents buy stock-owning mutual funds when their children are young. You can afford the risk as long as your need for that money is four years away. Since World War II, every bear market has snapped back by then.

When your child reaches 14, however, you’re entering the danger zone. Stocks could drop and fail to recover in time. So take the freshman-year money out of stocks and put it somewhere safe, like a bank CD, a state prepaid tuition plan or Series EE Savings Bonds. When the child is 15, take out the sophomore-year money, and so on. If you earn a middle income or less, and buy EE bonds in your name, you’ll owe little or no tax on the interest earned when you cash in the bonds for college tuition.

As for how much to save, don’t be scared off by the table on this page. That’s the average amount required, but you can start smaller and raise your savings as your salary goes up. For exactly what percentage of salary to save, get T. Rowe Price’s free College Planning Kit (800-638-5660).

Don’t buy a life-insurance policy solely to save for college. The cost of insurance reduces the sum that you can accumulate.

Middle-income parents might qualify for more student aid if they save in their own names rather than give their child the money. The aid formula taps 35 percent of the child’s assets every year, but less than 5.6 percent of the parents’ assets, Re says, depending on your age and income. If you don’t expect much aid, however, switching savings to a child’s name will reduce your income taxes.

The granny bank. A grandparent’s savings aren’t counted as part of your family’s assets, so they don’t diminish your child’s eligibility for student aid. Every year, a grandparent can pay part or all of the child’s tuition directly to the school–and give the child $10,000–all gift-tax-free.

Choosing between college and retirement. If you can’t save for both, make retirement your priority. You can borrow for college (or your kids can), but no one borrows his way through old age. Home-equity loans (with tax-deductible interest) and PLUS loans often cost the least.

Graduate school! How much aid grad students get depends on what they study. Law and medical students usually pay their own way. Advanced science degrees are heavily funded by grants and research assistantships, often awarded on merit, not financial need. In the arts and social sciences, you may find teaching posts.

And what of the poor? Their grants and loans have not kept up with college costs and their parents can’t pick up the slack. Since 1980, they’ve been the only group to have traded down educationally, Schapiro says. Fewer of the poor now attend private colleges; more enter two-year community courses. Community colleges are fine institutions, but four-year schools lead to better jobs. The gap between rich and poor starts here.

Here’s how much to invest each month, if you’re starting from scratch and want enough to pay for the average school in full.

Monthly investment needed Years before Public Private college starts College* College* 5 $765 $1,599 7 533 1,156 9 434 907 11 358 748 13 304 636 15 265 553 17 234 489 ..MR.-

  • Four-year average cost in 1996-97: $46,581 at public, $97,327 at private. Assumes college costs rise at 5% annually, with investments earning 8%. Source: T. Rowe Price Associates ..MR0-

Find the figure close to your 1995 income on the left, then read over to the column that best represents your assets. The dollar figure there tells you what’s expected, in the 1996-1997 college year, from a typical parent, 45, with two kids, one in college. Older parents would be expected to pay less.

Family Assets* 1995 Income $25,000 $50,000 $100,000 $20,000 One-earner couple $0 $44 $1,364 Dual earner couple 0 0 792 Single parent 0 419 1,739 $40,000 One-earner couple 2,937 3,313 5,421 Dual earner couple 2,284 2,608 4,407 Single parent 3,014 3,831 6,193 $60,000 One-earner couple 8,303 8,912 11,732 Dual earner couple 7,081 7,690 10,510 Single parent 7,752 9,038 11,858 $80,000 One-earner couple 13,825 14,434 17,254 Dual earner couple 12,603 13,212 16,032 Single parent 13,274 14,560 17,380 $100,000 One-earner couple 19,798 20,407 23,227 Dual earner couple 18,576 19,185 22,005 Single parent 19,163 20,449 23,269 ..MR.-

  • Excluding home equity and retirement plans, not counted for Federal aid by most state colleges. Home equity may be counted by private colleges; some also count retirement plans. Calculations assume the standard tax deduction. Source: The College Scholarship Service. ..MR0-