College is often seen as an important stepping stone to a more financially secure future. And that can definitely be true for many people. But with the costs of college in the United States rapidly rising, affording that stepping stone is becoming a lot more challenging for many parents or those who may be covering the expense.
However, while prices can seem intimidating at face value, it’s definitely possible to have your children participate in higher education and not have it cost an arm and a leg. But it may require some savvy, and it’s always helpful to know a fuller picture of your options when it comes to paying for college so you can make the best decision for your child’s future.
In this post, we’ll share with you some common ways folks pay for college, including loans, financial aid, and more.
College savings
Saving for college is always the first line of defense. So if you have something saved up for your kid to attend college, use that money first to minimize the amount of debt you or your student may need to take on.
If you haven’t started saving yet, that’s okay! If you’ve got a little bit of time on your side, start saving for college now. The more you can save, the better. But even if you don’t have the space in your budget to set aside a large amount for college savings, every little bit helps, and having even just a little bit of cash set aside will help to give you a little bit more peace of mind when your child is ready to head off to school.
Financial aid
Financial aid is a single beast with lots of legs. At the core, it’s just a form of funding that’s available for students and their families to help pay for higher education. To be eligible for aid in the United States, you must fill out what’s called a FAFSA (Free Application for Federal Student Aid). The usual deadline is the end of a student’s last semester of high school, but you can keep an eye on the exact FAFSA deadlines on their official website. Types of financial aid may be available for those outside the US, and folks should check with the appropriate office in their area to see what’s available.
Again, there are lots of different types of financial aid available in the US, so we’ll cover some of the most common forms here.
Grants
Grants are awarded on a need basis, meaning that you must fill out a FAFSA in order to receive them. They are gifts, which means that, in most cases, they don’t need to be paid back. You may receive grants from the federal government, your state government, your kid’s college, or from a private or nonprofit organization.
Like scholarships, which are covered below, some grants have eligibility requirements, like GPA minimums that must be maintained, so even once your child has been awarded a grant, it’s important that they check the details of that grant to make sure that they’re maintaining their eligibility.
You can find more details on the different kinds of grants and how to apply for them here.
Scholarships
There are few different types of scholarships. In general, scholarships are money that is gifted to individuals to help them pay for college. Because it’s a gift, it doesn’t need to be paid back (just like grants).
Organizations such as nonprofits, private companies, and even schools can award students with scholarships. Some are merit-based, which means a certain GPA needs to be maintained in order for the student to continue receiving the aid, while some are need-based and awarded based on FAFSA information.
Federal student loans
Depending on the details of your FAFSA, you may be eligible to receive a federally-backed student loan. If that’s the case, there are a few different types you may be offered.
Direct Subsidized Loans have better terms, and that’s probably because they are need-based loans. Throughout your student’s time in college, these loans won’t accrue interest, which will help you save money in the long term. They will, however, begin accruing after your child graduates. Direct Unsubsidized Loans, on the other hand, do accrue interest while your kid is in college.
In the end, both types of loans will need to be paid back. And in both cases, the college your child attends will choose how much of each type of loan (if any) that you’re eligible for.
See more details about federally backed student loans.
Private student loans
Private student loans are exactly that — they’re loans you take out personally with a third-party bank or credit union that’s not connected to your college or FAFSA application.
Private student loans are generally more expensive than federally-backed loans, so it may be helpful to exhaust your financial aid options before turning to a private loan. But one advantage is that you get to shop around for interest rates, rather than having them set for you. Additionally, you can take out private student loans in conjunction with federal student loans since they’re not connected.
If you’re considering a private student loan, start with banks or credit unions that you already have a banking relationship with. You might get the best terms from those establishments.
Work
If you’ve talked with your kids and they expect to work to help pay for their college education, then they have a few different options.
Work-study is technically part of financial aid and can be a good option since these kinds of jobs are usually more flexible to help accommodate students’ busy schedules. Your student’s college will most likely have a website where they post open work-study positions.
Of course, if work-study isn’t included in your financial aid package, there are often local jobs available that students can take on to help them make extra cash for their tuition or other needs.
Things to know
This might seem like a lot of information, but we haven’t even scratched the surface when it comes to the types of aid that is available for students nowadays. And that’s good news, because college can be expensive, and having multiple avenues for aid gives you a better chance of making college more affordable and attainable for your family.
If you’re interested in learning about some less common types of aid, like aid for military families or local state aid, head to StudentAid.Gov for more details.
