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How to Pay for College

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

How much does it cost to attend college?

The cost of college depends on the institution you attend.

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.

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Financial aid

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.

Federal loans

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 is based on a variety of factors, such as 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.


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.

Private loans

Private student loans are usually used by those who want or need an alternative to federal loans. 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.

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 offered through your specific school or by major companies – like the Coca-Cola Scholars Foundation and Buick Achievers Scholarship Program – typically require a separate application from the FAFSA. There are a number of full-ride scholarships available such as Duke University’s Robertson Scholars Leadership Program or The Evans Fellowship at Missouri Southern State University. Additional scholarships are based on 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.

Work study

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.

Your loans after receiving an undergraduate degree

Finding ways to pay for college is the first step, but repaying your education debt is something you should start thinking about before graduation day arrives.

There are several repayment plans available for federal student loans, including income-based repayment and the standard 10-year plan. Repayment options for private loans are determined by the lender.

Once you’ve secured steady employment and have a good track record of making payments, you could be in a favorable position to refinance your student loans into a lower rate. While refinancing isn’t for everyone, it can help you reduce the total amount you owe, change your monthly payment amounts and even allow you to pay off your loans more quickly.

Companies like Earnest allow you to consolidate and refinance your federal and private loans into one monthly payment. When it’s time, check out this list of pros and cons to help you decide whether refinancing is a good idea for you.

New to Earnest?
Earnest is a technology company using software automation, smart design, and exceptional service to restore trust in the lending industry and help clients take control of their finances.