How to Pay for College

Here's a guide on how to pay for college

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In this guide we’ll cover the following questions:

It seems like the cost of college and amount of student loan debt in America is always in the news. All the negative talk can make the process of paying for your education seem daunting, if not impossible.

When you educate yourself on what financial aid opportunities are available to you, make a financial plan, and work hard, you may just find that college is much more affordable than you thought.

Finding the Right Affordable College

The price tag on your education is greatly affected by which school you attend. Different schools offer different financial aid packages (aka award letters) that help you pay the cost of attendance. The financial aid you receive from a school can drastically change the posted sticker price, so it’s important to compare award letters.

A number of other factors also dictate how expensive a certain school can be—if it’s in-state or out-of-state, whether it’s private or public, the size of its endowment, if it’s online or on a campus, etc. Finding the right college program is the foundation for creating your college plan.

Net Price vs. Sticker Price

Let’s start off by defining two very different terms used to illustrate a school’s cost.

Sticker Price

Sticker price is the posted cost of attendance at a college. This is the number that can make people think twice about even applying. For example, the current sticker price at Stanford University is just over $69,000…per year! (That’s over 275K for a four year degree!)  It’s an intimidating number, but don’t cross schools like Stanford with high sticker prices off your list just yet.

Net Price

The net price is what you’ll actually pay—aka the cost of attendance after scholarships and institutional aid have been deducted. This can drastically lower the sticker price. In fact, Stanford students with demonstrated need can earn upwards of $40,000 in institutional aid. Private colleges tend to offer their students generous award letters, helping them afford colleges, and making attendance there fairly affordable. The net price is what you should focus—not the sticker. So, how do you determine what the net prices at  your target schools actually are?

Net Price Calculators

A net price calculator is a great tool to gauge if a certain school is an affordable option for you.

While all colleges will have a Net Price Calculator (NPC) on their website, it can be tedious providing  your information to each school you’re interested in. Save time by filling in your financial information once on College Raptor’s free NPC and discover your personalized net price estimate at any 4-year institution in the US!

Compare Financial Aid Packages

Comparing your financial aid award from your different schools that you’ve been accepted into is one of many factors that can help you make your final college choice. You can weigh how much aid each school is willing to give against other perks or drawbacks in order to narrow down your list.

This should come as no surprise, but all schools are different. No two schools have the exact same financial aid offerings or admissions policies, so their award letters may look entirely different. On top of that, the type of school might affect the type of aid or the amount of aid offered quite a bit. For example, private schools tend to offer their students more in the way of financial aid to offset the higher tuition costs, whereas public schools may not offer quite as much, but typically have lower sticker prices to begin with.

Remember, award letters are not necessarily set in stone. Not only can you appeal for more aid, you also don’t have to accept everything offered in the award letter which often includes student loans.

Community College

If the net price is still causing you to lose sleep, consider a 2+2 programs—attending a community college for 2 years, then transferring to a 4-year college to finish out your bachelor’s degree. They are growing in popularity and can decrease your educational expenses by thousands.

Let’s put it this way. According to NCES, the average cost of a 2-year community college (including tuition, fees, room & board) in 2016–17 was $10,655 per year. The average cost of a public 4-year in-state college was $17,987 per year. For four full years, that cost would be approximately $71,948. But if you went to community college for two years first, it would look more like $57,284. Which is an average saving of $14,664 for a bachelor’s degree!

How to pay for college: prices can change based on what institution you go to

This method can help save tuition and housing costs while getting your general education requirements out of the way, so you can focus all of your attention on your major once you transfer.

Online Colleges

In the age of the internet, just about everything can be done online—including receiving a college degree. Whether to save money or to fit it into their busy schedules, many people are turning to the convenience of online colleges.

Going to online college and earning a degree online reduces cost for travel, room & board, and more. Tuition can still be pricey, as can the text books and computer programs, but online colleges offer ways to cut costs in other areas.

You Got In! Now How Do You Pay for It?

Once you have selected the schools, evaluated their net prices, and sent in your application, it becomes time to wait for those acceptance letters. (good luck!) While you are waiting you can still continue your search for financial aid. Oftentimes even college savings aren’t enough to cover the full college cost. Luckily, there are quite a few places to find additional financial aid. Ideally, you should maximize free gift aid first before turning to student loans.

How to pay for college: here are some resources to pay for college

What if My Parents Didn’t Save Money for My College Education?

If your parents were not able to have enough college savings to completely pay for your college degree, or if you’re paying for college on your own, there are still a number of ways you can make that degree affordable. Gift aid and federal financial aid will be paramount for you.

The FAFSA

How to pay for college: fafsaThis acronym, which stands for Free Application for Federal Student Aid (FAFSA and CSS), describes a vital step in the financial aid process. Students can only be considered for federal aid by completing the FAFSA, which asks for both clerical information such as one’s social security number, confirmation of citizenship, as well as income information. The form can be found online at https://fafsa.ed.gov/, and goes live October 1 of each year (though the submission deadline can vary depending on your home state). That FAFSA will apply to potential financial aid for the following academic year. For example, the FAFSA that opens October 1, 2018 will apply to the academic year starting in fall of 2019.

The FAFSA will outline which federal grants, and federal student loans you’re eligible for. Filing the FAFSA should be your number one priority when it comes to financial aid. It can affect federal aid, institutional aid, and even outside scholarships as the form determines your financial need.

Gift Aid: Scholarships & Grants

How to pay for college: gift aid

Scholarships vs. grants are by far and away the best method of paying for college. These sources of gift aid don’t have to be repaid and can reduce your likelihood of student loan debt.

There are plenty of scholarship opportunities available. It’s worthwhile to spend some time searching and applying for as many scholarships as possible. Even smaller awards can really add up.

Applying for Institutional Scholarships & Grants

Colleges award their students scholarships and grants through their financial aid award letter. These financial aid packages can greatly reduce your overall cost and make that school option more affordable. To apply, speak to the school’s financial aid office and learn how to submit your application for consideration.

Applying for Outside Scholarships

There are countless scholarship opportunities out there, you just have to search for them. Outside scholarships can come from employers, companies, national organizations, local business, religious centers, ethnicity groups, and plenty more. Every scholarship your earn lowers your potential for student loan debt. Keep in mind, however, that many scholarship awards could affect how much money your college will award you in your financial aid package.

Here are some great articles to help kick-start your search:

Work Study

How to pay for college: work studyAnother way for you to earn money towards the cost of college is by participating in work study programs. These programs function like part-time jobs often on campus, typically related to your chosen field of study, and your earnings funnel towards your tuition. Your work-study eligibility is often determined by your financial need.

Federal Student Loans

How to pay for college: federal loans

As you could probably guess, federal loans are issued and backed by the U.S. government. A federal loan differs from a private student loan in more than name; available funds for federal loans can be more unpredictable, since they are dependent on changing government budgets for education spending. However, federal loans offer fixed interest rates that are generally lower than private loans from a bank, which can benefit students who want to save money over the life of their loan.

Types of Federal Student Loans

There are four main types of federal student loans

Direct Subsidized: A loan for undergraduate students that demonstrate financial need. The U.S. Department of Education pays the interest on this loan while the student is enrolled at least half time.

Direct Unsubsidized: A loan for undergrad or graduate students regardless of financial need. Students are responsible for paying interest on this loan while enrolled.

Direct PLUS: A loan for parents of dependent undergraduate students, or for independent graduate students.

Direct Consolidation Loans: A collection of all federal loans previously taken out that can be combined together into one federal loan.

Federal Loan Repayment Plans

There are four main types of federal repayment plans to choose from:

  • Standard: Pay back the loan on a regular schedule over the course of 10 years.
  • Graduated: Start by paying back with lower monthly payments that increase every 2 years.
  • Extended: Pay back the loan over 25 years, with low monthly payments.
  • Income-Based: The amount paid per month depends on your financial income.

Private Student Loans

How to pay for college: private loans

If a loan does not come directly from the federal government, it is considered a private loan. 

Private student loans stem from multiple sources, including community organizations, nonprofits, corporations, banks, and even universities themselves. The interest accrued on private loans can be deducted from taxes, which can make them attractive to some students depending on their situation.

Private loans should be considered a last resort for funding your degree, as the interest rates tend to be higher and the repayment plans are less flexible. If you find yourself needing one, it’s paramount to find a loan option that best fits your situation. With College Raptor’s free Student Loan Finder you can look at interest rates and terms from leading lenders side by side.

Interest Rates

As a loan borrower, you will not only pay back the original amount that you borrowed, but also interest that accrues every month based on the outstanding balance. For most borrowers the interest rates are somewhere between 2–10%. Generally speaking, federal interest rates tend to be lower than private loan rates.

The rate of interest that you pay can make a huge difference on how much you pay not only each month, but also how much total accrued interest you pay over time.

Small changes–like 1 or 2%–in your interest rate can add up to thousands or tens of thousands of dollars over the life of your loan, depending on how much you’ve borrowed and your repayment terms.

Factors that affect your interest rate may include:

  • Credit score/history
  • Student loan payment history
  • Degree
  • Current and future earnings
  • Savings habits

Variable Rate vs. Fixed Rate

All federal loans have a fixed interest rate, but private loans have an option called a variable rate.  With a variable rate, the interest rate can go either up or down (depending on the index rate). Variable rates can be a bit of a gamble, because on one hand you might score a lower interest rate, but on the other it might go up above a fixed rate. This also affects your payments—you could end up paying more one month and paying less another month, or vice versa. A variable interest rate is generally not recommended for longer term loans.

If you’re looking for a little bit more structure and predictability, look into fixed rate loans. With these, what you see is what you get. Rates do not fluctuate and instead stay constant throughout the duration of the loan.

Co-Signers

Most college students don’t have much previous experience handling their own personal finances. As such, banks and lenders don’t have proof that the you’re reliable with your money, and can be entrusted with paying back a loan in the future. You likely haven’t had much time to establish good credit yet either.

This is where a co-signer comes in. By co-signing, someone (usually a parent) with an established credit backs the borrower, so the lender is much more willing to approve the student loan. If you fail to make monthly payments, your co-signer is on the hook for making the payments. For undergraduate student loans, you’ll likely be required to have a co-signer.

Cut College Cost

There are a number of ways to cut the overall cost of college besides financial aid.

Graduate on Time

Taking on an extra year or two also creates extra costs—tuition, materials, housing, meals, more loans, and so on. Therefore, it’s ideal to graduate in the standard four years (find out here what the odds of graduating in 4 years are) for a bachelor’s degree. Work closely with your academic advisor to make sure you’re on track. You’ll have to consider credit requirements and classes mandatory to your major, among other things.

Avoid Transferring Schools

Another way to ensure you graduate on time: avoid transferring. Transfers often tack on another semester or two since requirements change and some credits won’t be accepted at the new school. This is another reason why it’s paramount to find the right college fit the first time around.

College Credit in High School

Some high school courses will offer dual college credit, which count towards your college credit hours. In essence, they’re credit hours you don’t have to pay tuition for. They’ll also help you graduate on time, since you’re getting some credits out of the way before college even starts. Just be sure to work extra hard in those classes, as grades will show up on your official college transcript and most institutions have grade requirements to accept the credit.

Saving Money and Budgeting

Sit down and plot out a monthly budget. This will help you limit your spending and keep you in financial check. For many college students, this is the first time you’ve really had responsibility with your own money—create a good healthy habit of budgeting well and sticking to the plan.

Textbooks

College textbooks can be incredibly expensive. Instead of pre-ordering all of your required texts, wait until after syllabus week—your professor might surprise you and determine a book is not required after all.

And even if it will be used, you can save money by buying used or an online digital copy. Ideally, you could find someone who took the class before you and borrow their book. And remember: always sell back your books after you’re finished with them—you won’t get back the full cost, but it’s something.

Take Advantage of Discounts and Deals

Your student ID is a money-saving wonder. Most college towns have discounts, deals, special events, and other treats curated especially for students. Whether it’s food, supplies, or entertainment, always keep an eye out for deals.

Every Dollar Saved Can Help You Avoid Debt

These might seem like small savings compared to your loan balance, but every little bit really counts. The more money you save, the more you have to put towards your student loan payments.

Allison Wignall

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