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How to Pay for College Without Loans
By
Kira Ranieri
Kira is a content writer at Scholarships360. Kira earned a Bachelor of Media and Journalism with a concentration in Advertising and Public Relations from the University of North Carolina at Chapel Hill.
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Caitlyn Cole is a college access professional with a decade of experience in non-profit program and project management for college readiness and access organizations.
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Maria Geiger is Director of Scholarship Services at Scholarships360. She is a former online educational technology instructor and adjunct writing instructor. In addition to education reform, Maria’s interests include viewpoint diversity, blended/flipped learning, digital communication, and integrating media/web tools into the curriculum to better facilitate student engagement. Maria earned both a B.A. and an M.A. in English Literature from Monmouth University, an M. Ed. in Education from Monmouth University, and a Virtual Online Teaching Certificate (VOLT) from the University of Pennsylvania.
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While higher education is certainly important, it’s equally important for students to realize the financial undertaking they agree to when they accept student loans. While 4-year colleges are a great investment in a student’s future, there’s a hefty price tag that can come with it. Additionally, student loans take most people 10 or more years to pay off, so here’s our tips on how to pay for college without student loans.
What student loans REALLY are and why you might want to avoid them
Remember, loans are not free money!
As a young person looking to get a loan for college, you should know exactly what you’re signing up for. But many companies that provide student loans don’t emphasize the true weight of what a student loan means. First of all, know that a student loan is NOT free money, unlike a scholarship or a grant that is awarded to you. When you take out a student loan, you only borrow that money, meaning you’ll have to pay it back. Paying the amount that you borrowed isn’t what takes sometimes over 10 years to do, rather, it’s paying the interest.
Learn about interest before you sign!
Interest is essentially the cost of borrowing. It’s usually a percentage that is applied to your balance, therefore increasing the overall amount you’ll be paying back compared to the amount you originally borrowed. That’s why interest rates are really important, because when it comes to borrowing large amounts of money, even a decimal point can make a huge difference. Interest isn’t exclusive to student loans, you will encounter interest rates when you purchase a car, a home, or when you have unpaid balances on your credit cards.
Let’s do a quick example:
The average interest rate for a federal student loan is around 5.5% and the average interest rate for a private student loan is around 7.5%. If you got a $10,000 student loan at each of these interest rates and paid them off over 10 years, your total cost for your federal loans would be $13,023.15 ($108.53 monthly payment) and your private loans would cost you $14,244.21 total ($118.70 monthly payment).
So, even though you borrowed the same amount of money, you would end up paying back $1,221.06 more on the private loan with a higher interest rate.
If you end up taking more time to repay the loan, the difference becomes even more dramatic. Let’s say you take 20 years to pay off your loans, since that’s the average amount of time it takes US borrowers to pay off student loans. Borrowing $10,000 with the same interest rates mentioned above, your federal loans would end up costing you $16,509.30 total ($68.79 monthly payment) and your private loans would be $19,334.24 ($80.56 monthly payment).
That means you would have to pay nearly double the amount you initially borrowed, all because of interest!
Cosigning a loan is serious matter
Most federal student loans don’t require you to have a cosigner; however, that isn’t the case for most private student loans. In order to secure a private loan in the first place as a young borrower, you probably will need someone to cosign that loan. The cosigner is legally responsible to pay back that loan in the instance that you can not. That’s why student loans can be a very big responsibility, not just for the student, but for any family or friends who decide to help them get a loan.
Loans should be a last resort
The reason you might want to avoid student loans is because you’ll have to pay more for your college education over time. Plus, once you graduate, usually within six months, you will need to start paying those loans back. If you happen to be in a place where you don’t land a job right out of college and are unable to start making payments, this could lead to your credit getting damaged. Weak credit will make it more difficult to secure a loan for a car or a home in the future. Not paying back your loans could even damage your parents’ credit, if they chose to cosign for your loan.
Remember that federal student loans have lower interest rates and more forgiving repayment plans than private student loans. With that being said, if you’re wanting student loans to be a last resort to pay for your education, here are some ways to make that happen.
Further reading: Student Loan Definitions
Start Saving
Obviously, you’ll need money to pay for your college education, so it’s a good idea to start saving as much as you can throughout high school. But with the colossal cost of college for a student in the United States, simply saving up as a high school student is just not realistic for most people.
Save money during a gap year
Something you could consider doing is taking a gap year between high school and college. This will give you a little more time to save money and really think about whether or not going to a 4-year college is right for you, before you commit to the investment.
Know what funds are available to you so you can plan
It’s also a good idea to start asking your parents or guardians if they plan on helping pay for higher education, or if they happen to have a college savings account in place for you. This is becoming more commonplace for parents to put away money for their children’s education as the cost of college continues to rise.
Also see: What if My Parents Refuse to Pay for College or Complete the FAFSA?
Apply for financial aid
Fortunately, there are ways to get money from the US government for your education. The first thing you should do is make an account with the Federal Student Aid website, so that you can fill out a FAFSA form. “FAFSA” stands for Free Application for Federal Student Aid, and it provides money for college to students who demonstrate financial need.
Along with completing the FAFSA, you can look into state and federal grants which do not need to be paid back. You’ll apply to many grants automatically when you fill out the FAFSA, such as the Pell Grant. Many colleges also offer grants directly through the institution, so make sure to contact your school’s financial aid office to see if there are any need-based or merit-based grants you may qualify for. It’s also a good idea to look into smaller local grants offered by private businesses as well, because any amount of gift aid helps!
Look for scholarships
While you typically have to wait to apply for financial aid until your senior year of high school, you can start applying for scholarships at any time! Some students even apply for middle school scholarships before high school! Scholarships are a great way to help pay for college, as there is no cap to how many you can apply to or win. This means that you could potentially pay for your entire education through scholarships!
One thing to consider though is bigger scholarships are usually highly competitive. So while it’s definitely worth your while to apply, they do tend to be harder to win. That’s why it is a great idea to start looking into smaller scholarships based on your specific interests, background, or demographic. Even though they have smaller awards, these more niche opportunities may have fewer applicants, giving you a better chance to win money for school! You’ll find that winning a fair number of smaller scholarships over time adds up.
Related: How to Win Local Scholarships
Start earning college credit in high school
Many high schools give students the opportunity to earn college credit either by offering AP classes or partnering with local community colleges. You may have heard of these programs or opportunities referred to as dual enrollment. This allows students to receive college for a much lower cost. When it comes to APs (Advanced Placement), students can either take a course if it is offered at their school, or opt to self-study for the AP Exam. It costs $98 to take an AP Exam, and depending on your score on the exam, you might be able to earn college credit that will help you graduate sooner and therefore save money!
Besides APs, look into whether there are any opportunities for you to take community college courses while in high school. Some community colleges offer programs that allow high school students to get a jump start on their college education for a very low cost. If you’re in high school, your school counselor can help you explore and sign up for dual enrollment options.
Consider more affordable education options
State schools
Going to a public school in your state is typically one of the most affordable options if you are thinking you would like to attend a university. These schools are typically larger in size, meaning you will have a large range of options to study. That being said, some private schools do have generous financial aid packages.
Either way, you’ll most likely want to start your college search by looking at schools within the state you currently reside in. That’s because most schools have different tuition rates depending on whether you’re an in-state student or an out-of-state student, and in-state rates are typically less expensive. Depending on where you live and what you plan on studying, you may even be eligible for tuition reciprocity, which allows out-of-state students to go to school in neighboring states and pay in-state tuition rates.
Trade schools
Trade schools are a great option for students who want to pursue careers in specific occupations, such as carpentry, automotive maintenance, nursing, or cosmetology. Compared to 4-year colleges, trade schools are usually more affordable and take less time to complete.
While there is less job flexibility when it comes to trade school, because you receive specialized training in high-demand occupations, many students are able to find gainful employment very shortly after graduation.
Community colleges
Community colleges are another great alternative to going to a 4-year college. These schools are typically much more affordable and many states have grant programs that allow students to attend community college free of cost! There is also greater flexibility when it comes to class schedules. Many students chose to take classes part-time, so they are able to work part-time during their education.
At a community college, you have the opportunity to earn your associate’s degree. While there are opportunities for graduates with an associate degree, many students decide to transfer those credits to a four-year college in order to get a bachelor’s degree.
Further reading: Alternatives to 4-Year Colleges
Final thoughts
While attending a 4-year college can be a wonderful experience and investment towards your future, it’s important to understand the full financial responsibilities that you are taking on. Many students (nearly 42 million in federal loans alone!) choose to take on student loans in order to complete their education. Having student debt is certainly not the end of the world, but it can certainly put a strain on your finances later on if you don’t stay on top of your plan to make repayments. If you feel unsure about whether or not using student loans to pay for your education is right for you, just know that you have other options. Take the time to consider what is best for you when making decisions about your future finances.