How to Pay for College (A Step-by-Step Guide)
Let’s face it: college is expensive and one of the biggest investments you will make in your life. But paying for college is much more confusing than other purchases you will make in life. For one thing, college really does cost a lot. Even the most affordable colleges are going to cost tens of thousands of dollars per year.
There are also lots of different ways to pay–cash, need-based financial aid, merit scholarships, student loans, 529 plans, and new financing options like Income Share Agreements.
No matter what, it is going to be expensive.
If you follow these steps, you will maximize your financial aid options and put yourself in the best possible situation:
Save money through a 529 Plan
Family contributions is a fancy word for “money you and your family has 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). Bottom line: it is never too late (but do try to start early as possible!) to start saving and every bit helps!
Apply for Scholarships
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 x, y, and z. There are lots of scholarships that are open to students who are freshmen, sophomores, and juniors as well as seniors in high school. You can use our Scholarship Finder to start your scholarship search!
Figure out what “affordability” means
Students and parents need to sit down and talk honestly about what is actually affordable. Having a specific number or budget will help guide the rest of the admissions and financial aid processes. Yes, we know that these conversations can be difficult, but they are necessary.
Build a list that includes affordable options
Paying for college is much easier if you apply to colleges that will offer you more financial aid. Students can use the Net Price Calculator to predict need-based financial aid at almost any college. This need-based financial aid comes in the form of grant money that does not need to be paid back.
Also consider colleges that offer 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!
Apply for Need-based Financial Aid
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 that CSS Profile. Need-based financial aid includes both grants that do not need to be paid back (like the Pell Grant) and federal student loans.
Choose an affordable option
When you receive your admissions decisions, compare all of your colleges by their cost of attendance minus financial aid and merit scholarships. Sometimes the colleges with the highest “sticker price” can be the most affordable.
Get a Part-time Job
When you submit the FAFSA, you are making yourself eligible for a part-time Federal Work-Study job opportunity. However, you will still need to find a job on campus and also work enough hours to earn all of the aid you qualify for. Students who do not qualify for a Federal Work-Study job can still find a part-time job on-campus or off-campus to help save money.
Take out Federal Student Loans
Loans should always be a last resort after you have tapped into all of the above financial sources. If you are going to take out student loans, you should always start with Federal Student Loans. These student loans have a number of advantages including income-based repayment and loan forgiveness.
Take out Private Student Loans
As a last resort, you can consider private student loans. 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–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 great tool to give you a sense of what you can expect to earn.