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How to Pay for College (A Step-by-Step Guide)

Let’s face it: college is one of the most important investments you will make in your life. However, college is an unusually expensive and complicated investment. The complexity stems from the fact that every family may be paying a different amount for college as determined by the EFC or Expected Family Contribution.

It is also a confusing process for students and families because there are so many ways to fund an education. Scholarships, need-based grants, savings, student loans, and work study are just a few of the ways that families and students might pay for college. This is why it’s important to have a plan to pay for college. In this guide, we will talk you through the process of paying for college.

Of course, every family’s financial situation is different, and the cost of college will be different for each. That’s why an important first step to paying for college is figuring out what college will cost for you.

Related: Scholarships360’s free scholarship search engine

Estimating the cost of college

I mentioned earlier that the cost of college will vary from family to family. This is because need-based financial aid is dependent on each family’s financial situation, so the “net cost” of college (after financial aid is factored in) can vary.

Luckily, there is a useful tool called the Net Price Calculator that can help students estimate what a need-based financial aid package might look like at a particular school. You don’t need to be an applicant to complete the Net Price Calculator, so you can feel free to use it well before you are applying for college. In fact, anyone can complete the Net Price Calculator including parents, guardians, and school counselors!

This is a recommended first step for all students and families who want to estimate the net cost of a college education.

Now that you have that figured out, we can dive into the major ways that students will pay for college:

Savings & income

According to the most recent Sallie Mae report, savings and income represented 50% of funding from students and parents. This made it the largest single funding source that families reported. Luckily for families, there is a financial vehicle called a 529 plan that provides tax benefits for educational-related savings.

Saving money through a 529 Plan

Family contributions” is a fancy phrase for “money that you and your family have saved” and one of the primary ways people pay for college.

One of the best ways to save for college is through a 529 Education Plan. A 529 plan allows families to use money tax-free for education expenses, including college. It is never too late to start a 529 plan, but a longer period of time will allow you to invest more money and allow your investment to grow.

Learn more: How much money can you put in a 529 Plan?

Need-based financial aid

Need-based financial aid is awarded based on a student’s family financial situation. This means that it can be a very valuable way to pay for college.

Students can apply for need-based financial aid through the Free Application for Federal Student Aid or FAFSA. Some colleges will also ask students to complete additional applications like the CSS Profile.

There are three major types of need-based financial aid that you might receive: grants, loans, and work study. Let’s discuss all three of these options:

Need-based grants

Need-based grants do not need to be repaid and can include institutional grants from specific colleges, as well as grants from the federal government such as the Pell Grant. The upside of need-based grants is that they are essentially free money and will not need to be repaid.

Work study

Federal work study is a need-based program through the federal government that allows students to pay for college and educational expenses through a part-time job. Students are responsible for finding their jobs through their school and the amount of money they earn will depend on the specific job, as well as the amount of hours worked. Earnings from work study also do not need to be repaid.

Federal student loans

The third type of need-based financial aid that students can qualify for are federal student loans. Federal student loans include subsidized and unsubsidized Direct Loans, as well as Parent PLUS loans. These student loans generally have more favorable interest rates and more flexible repayment options than other student loans. This generally makes them a better option than private student loans which we will get to later.

Learn more: Top Student Loans for undergraduate and graduate degrees


Tons of companies, non-profits, foundations, and other organizations offer scholarships to students! Similar to college merit scholarships and need-based financial aid, scholarships do not need to be paid back. There are scholarships for lots of different things including writing, volunteering, and athletics.. There are lots of scholarships that are open to students who are freshmen, sophomores, and juniors, as well as seniors in high school. 

College merit scholarships

In addition to need-based financial aid, many colleges offer merit scholarships to strong applicants. These merit scholarships are also great, because they don’t need to be paid back. Merit scholarships can range from a few thousand dollars to full tuition, room, and board!

The process of applying for college merit scholarships can vary form college to college. At some colleges, all applicants will be automatically considered for merit scholarship opportunities with their admissions application. At other colleges, students will have to submit a separate merit scholarship application with additional essays. When in doubt, you should check in with the colleges on your list so you an be sure you are properly applying for merit scholarships.

Private student loans

Private student loans are loans that are offered by private financial companies, as opposed to the government. The best advice is to compare different loan rates and repayment terms. By comparing different options, you will be able to find the best private loan solution for your situation.

Remember that you are responsible for paying back all student loans–both private and federal. As a rule of thumb, you should try to keep your total loan amount at or below your anticipated post-graduate earnings. So if you expect to make $50,000 per year, you should not take out more than $50,000 in total student loans over four years.

The College Scorecard is a tool that can provide useful data about what you can expect to earn as a graduate of a particular college or university. Remember, earnings can vary depending on your major or chosen career pathway, so keep that in mind!

Also see: How much student loan debt is too much?

Other ways to pay for college

While income & savings, need-based financial aid, scholarships, and private student loans are the major ways that students pay for college, there are some additional options to consider.

Income Share Agreements are one such funding option where students promise to pay back a portion of future earnings in return for educational funding.

Some colleges also offer in-state tuition to certain out-of-state students. This is another way to potentially save tens of thousands of dollars on college tuition.

Next Steps

Next Steps

  • If you are saving money for college, a 529 Plan will allow you to take advantage of certain tax benefits!
  • Use the Net Price Calculator to estimate financial aid at all of the colleges on your list. If you are still in the research stage, you should run the Calculator on a few schools to get some benchmarks on college cost
  • Apply for need-based financial aid with the FAFSA and CSS Profile (if your college requires the CSS Profile). Remember, that both the FAFSA and the CSS Profile have deadlines that may vary based on your school!
  • As a last resort, you can use private student loans or Income Share Agreements to pay for college. We also recommend that students shop around for the best terms and rates for these alternative financing options
Next Steps