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How to pay for college

8 Ways to Pay for College

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The value of a college education is well documented. From collecting about $1 million more in lifetime earnings to an increased likelihood of finding employment (and even a reduced risk of developing dementia!), obtaining a bachelor’s degree has long been associated with a higher quality of life.

While the path to graduation isn’t cheap – and it is more expensive every year – there is help available to afford the costs of higher education. The federal government annually awards billions of dollars in financial aid and tax benefits to help undergraduate students pay for school — and private student loans can help as well.

If you’re wondering where to begin, continue reading for a breakdown of your options to pay for college.

How to Pay for College

There is no one-size-fits-all strategy when it comes to paying for college. Mix and match from the strategies listed below to find the best solution for your education expenses. 

1. Save your income in a savings account or 529 plan

If you are the parent hoping to send your student to college in the future, the best thing you can do is get started on saving ASAP. Let compound interest do some of the saving for you by investing in a low-risk investment account early.

If you are a student hoping to go to college, be sure to set aside as much of your paycheck as you can for your savings or 529 plan. Be proactive early so you don’t have to take on more debt when you are in school.

What is a 529 plan?

One underutilized choice for further education savings is a tax-advantage 529 plan. A study by Edward Jones in 2017 found that two-thirds of Americans don’t know what a 529 plan is and the benefits offered. There are two options when deciding on a 529 plan: Prepaid Tuition Plans and Education Savings Plans.

As described by the SEC, prepaid tuition plans let a saver “purchase units or credits at participating colleges and universities (usually public and in-state) for future tuition and mandatory fees at current prices for the beneficiary”, while an education savings plans “let a saver open an investment account to save for the beneficiary’s future qualified higher education expenses – tuition, mandatory fees, and room and board.” The benefit of investing in a 529 is the tax-advantage feature, letting the account holder put more money away. There are fees, expenses, and restrictions to consider with a 529 plan. Discuss your options with a financial advisor to find the best fit for your financial situation. 

2. Earn college credits in high school and test out of general education classes

If you go to a high school that offers Advanced Placement, International Baccalaureate, or College Level Examination Program classes, these can be a great way to work toward college requirements while still in high school. Many of these classes will not only fulfill the graduation requirements for your school but will feature a test or grade requirement at the end that a college could accept as fulfilling a class credit. Each college translates these scores and classes differently, so be sure to look into this when applying. 

Some high schools have partnerships with local universities so high school students can earn college credits early and attend classes at the college. This can also be a great way to get a feel for a campus you might be interested in attending in the future. 

Getting a jump start on college credits before you even start your freshman is a huge relief of those worried about the expense of each class. Some students are even able to graduate early because of the credits they brought with from high school.

3. File FAFSA for federal aid and federal student loans

To apply for most financial aid, you’ll need to complete the Free Application for Federal Student Aid (FAFSA).

The FAFSA is what determines your eligibility for state and federal grants, work-study and loans. Some colleges and universities have additional requirements, so check with your school’s financial aid department to make sure you comply.

The FAFSA is available beginning on January 1, however, priority deadlines may vary by school. You can complete, submit and track the status of your application entirely online, and there are free resources to help you (and your parents, if applicable) fill out the form.

One key difference between undergraduate and graduate students: undergraduate students are typically considered dependents, and must report their parents’ financial information as part of their FAFSA. Graduate students are more like to be considered independent; those with independent status do not need to report their parents’ financial information.

When a particular school admits you as a student, they’ll offer you a financial aid package based largely on the information included on your FAFSA. Every school has a different mix of need-based aid and merit-based aid that they offer.

4. Apply for scholarships and grants

Grants and scholarships are often called “gift aid” because they don’t have to be repaid. While scholarships are usually awarded based on merit (i.e. educational achievements), grants are based on financial need.

The most common grants awarded by the federal government are Pell Grants and Federal Supplemental Educational Opportunity Grants (FSEOG). Amounts vary based on financial need, the cost of attendance, the amount of other aid you receive and the availability of funds at your school (FSEOG only).

Scholarships can be offered through your specific school or by major companies – like the Coca-Cola Scholars Foundation – typically require a separate application from the FAFSA. There are a number of full-ride scholarships available from schools directly based on academic achievements, athletic prowess or minority status.

Regardless of the type of scholarship you seek, it’s best to check with your school for a list of available scholarships and their requirements. You can also search online via the College Board, and Fastweb.

5. Consider a more affordable college

The cost of college depends on the institution you attend. However, the cost of both public and private colleges are on the rise, and salaries are not rising at the same rate.

how to pay for college

According to the College Board, the average cost of just tuition and fees for the 2015-2016 school year was more than $32,000 at private colleges, $9,400 for state residents at public colleges and $24,000 for out-of-state residents attending public universities.

But while colleges often report a combined tuition-and-fees figure, the sticker price alone isn’t the true cost of attendance.

You’ll want to account for the cost of room and board, books and supplies, personal expenses and transportation to arrive at the real number. Schools are now required to report their best estimate of the cost of attendance (COA) and that is the number that you should consider when thinking about how much you’ll be paying for your education.

How to pay for your Graduate education

Want more info on how to pay for your graduate education?

Download our new guide to get the information you need.

Download Guide

6. Borrow federal loans first

Generally known as Stafford Loans, subsidized and unsubsidized federal student loans are offered through a school’s financial aid office. The major difference between the two is who pays the interest on the loans before your repayment starts (usually expected to begin once six months have passed after graduation).

For subsidized loans, you do need to demonstrate financial need, the government pays (or subsidizes) the interest while you’re in school, during your grace period and during any other deferments.

For unsubsidized loans, you do not need to demonstrate financial need and you’re responsible for interest that accrues during school, your grace period, and deferments.

Interest rates vary based on when the loans are issued, so borrowers should check with the Department of Education for exact rates.

How much you can borrow from federal student loans

How much you can borrow is based on a variety of factors, such as the cost of attendance and dependent status.

Year Dependent Students Independent Students
First-Year Undergraduate Annual Loan Limit $5,500 – No more than $3,500 in subsidized loans. $9,500 – No more than $3,500 in subsidized loans.
Second-Year Undergraduate Annual Loan Limit $6,500 – No more than $4,500 in subsidized loans. $10,500 – No more than $4,500 in subsidized loans.
Third-Year(and Beyond) Undergraduate Annual Loan Limit $7,500 – No more than $5,500 in subsidized loans. $12,500 – No more than $5,500 in subsidized loans.
Subsidized and Unsubsidized Aggregate Loan Limit $31,000 – No more than $23,000 in subsidized loans. $57,500 – No more than $23,000 in subsidized loans.


Federal Parent PLUS loans are available

Parents of undergraduate students can also borrow federal loans under the Parent PLUS loan program. Maximum loan amounts are calculated by subtracting other financial aid received from the student’s cost of attendance. Parents applying for these loans must go through a basic credit check. Read more information about PLUS loans, including how to apply and repayment options.

7. Borrow private student loans to close any affordability gap

Private student loans are usually used by those who want or need an alternative to federal loans. Students who have maxed out their federal loans may also turn to private loans to fund the remaining balance for their education.

Rates are determined by the borrower’s creditworthiness and can vary widely from lender to lender. These can be taken by students (often with a cosigner when for undergraduate education) or by parents.

8. Work an on-campus job for additional income during the school year

Work-study jobs

Unlike other types of financial aid, the federal work-study program provides undergraduate students with a job (i.e. you must work to receive the money). Schools award work-study funds on a first-come, first-served basis.

Your hourly wage can’t be less than the federal minimum wage ($7.25 per hour) and eligibility is based on your financial need. Jobs can be on-campus or off-campus, though the federal work-study program emphasizes employment related to your area of study wherever possible. You can opt to receive your paycheck directly or request that your school applies your earnings toward tuition, fees or room and board.

Other on-campus jobs

College campuses are like micro-economies, and there are tons of jobs available around campus that might not be listed specifically as work-study. Just look around your campus and you probably will see students working everywhere. From the baristas, gym staff, front desks, resident living assistants, campus ambassadors, etc. These can be excellent part-time jobs during the school year that accommodate study schedules and provide additional income.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.