How to Pay for College: College Programs, Loans and Student Budgeting

How Much Can You Afford?

The cost of school will vary based on scholarships and financial aid.  It’s best to get an idea of how much you can afford before you start applying to different schools.

Many students take on debt when enrolling in school. If you are looking to graduate debt-free, lower your out-of-pocket costs as much as possible. When taking out a loan for college, a good rule of thumb to follow is that your loan payments should be no more than 10% of your after-tax income your first year out of school.

Let’s look at an example:

If you plan to become a teacher and expect to earn around $35,000 after taxes during your first year after graduation, you’ll make around $2,900 a month. Divide that by 10, and your monthly student loan payment should be no more than around $290 a month.

Lowering the Cost

To save money, consider spending a few semesters at a community college to get your prerequisites out of the way. Check to make sure these credits will be valid at your school of choice. You can also save money by staying close to home. Consider enrolling at a public state university to take advantage of in-state tuition. You may be able to transfer to a private school down the line.

Consider the full cost of college before choosing a school, including textbooks, food, moving expenses and room and board. Staying at your current home can help bring down the cost. Consider renting out a room in a local apartment instead of paying for housing through the school. Cooking may also be cheaper than paying for meals at the local dining hall. Be sure to compare your options when making these decisions.

Earning a Living

Will you work during school, or are you planning to focus on your studies full-time? Many people find the time to earn a living while pursuing a four-year degree, but it all depends on your needs and future lifestyle. You may be able to get a part-time job on-campus through a work-study program, so look for schools and institutions that offer this option.

Apply for the FASFA

As you begin applying and saving for school, you must fill out the Free Application for Federal Student Aid (FAFSA), regardless of your financial situation. The form will ask you questions about your finances to see if you are eligible for financial aid.

Some current and prospective students make the mistake of not filling out the FASFA due to the misconception that they won’t qualify, but that’s not always the case. Spend the time filling out this form to see if you qualify, even if it’s just a few hundred dollars a year. You’ll need to fill it out every year you are in school as your finances change.

Choosing a School

Universities and schools will refer to the information you provided on the FASFA when looking at your application. Don’t be afraid to explore and research more expensive schools even if the stated tuition is out of your price range. A school that costs $60,000 a year may offer you $40,000 a year in financial aid, making it cheaper than some of the other schools on your list.

Consider the reputation of the school and whether your degree will help you get a job after you graduate. Money doesn’t always equal value. Some schools may cost a fortune but offer little value in practice. Research the school and its track record in terms of helping people get a job.

It’s best to cast a wide net when applying to school to expand your options. The right application could land you a great degree with a generous financial aid package. However, remember that each application can cost anywhere from $20 to $60.

Scholarships and Grants

Never underestimate the power of scholarships and grants. Regardless of your background, spend some time researching different scholarships that apply to your specific situation. From sports to the arts and first-generation students, there are many organizations looking to get qualified students into college.

If you are looking to specialize in a particular field, look for scholarships related to your industry. You don’t have to play sports to get a deal on tuition. Reach out to local foundations and institutions to see if they are willing to support these programs. Also, search online for scholarship opportunities from trusted sources.

You can also apply for a Pell Grant. This is a federal scholarship reserved for low-income undergraduate students from families that may not be able to afford to send them to college. Also, having a good grade point average and doing well on tests like the ACT may help you qualify for merit based scholarships from colleges you apply to.

College Savings Plans

Parents looking to send their child to college often take advantage of 529 plans, or college savings plans, years before they’re expected to enroll. If you plan ahead, you can send a certain portion of your income to a state-run tax-advantaged college saving program. 529 plans can be started by other relatives like grandparents for the benefit of grandchildren as well. Plan beneficiaries can be changed, so if one child doesn’t use all of the funds, the rest can be used for younger siblings. Money in these accounts can be invested in a variety of plan options so they grow over time.

When it’s time to go to school, you can either use the account to pay for tuition and other college-related expenses or use it to pay off your student loans in the future.

Consider taking advantage of pre-paid college tuition programs. The cost of college continues to go up year after year. These programs help you pay for college ahead of time, so you can lock in the lowest possible tuition rate before it goes up.

Applying for a Loan

Last but not least, you can apply for a loan to help pay for college. There are two types of loans: federal and private. Applying for a federal student loan when financing your education can be a good option to consider and typically something you would do before looking into private loans. The government will loan you a certain amount of money, but it may not be enough to pay for all of your education.

Unlike private loans, federal loans often come with flexible income-driven repayment plans, so you can adjust your monthly payment based on your current income. If you have trouble getting a job out of school, you may be able to lower your monthly payment or reduce it to zero until you have a job and are making income. Avoid deferring these payments for too long, as the interest will start to accrue, making it that much harder to get out of debt once you graduate.

Once you’ve applied for federal loans, you can try to finance the rest of your education with a private loan. Compare the terms and conditions of different lenders and financial institutions. Check the interest rate and the estimated monthly payment to make sure you can pay off the loan on time.

Consider applying for a loan at a local credit union to lock in a lower interest rate. Credit unions tend to cater to students from the surrounding area and those applying to local universities. If you’re a student or don’t have a lot of credit, a local lender might be able to offer you a lower interest rate.

Paying for Everyday Expenses

Once you enroll in school, consider applying for a college credit card. These types of cards are only available to students enrolled in an accredited institution. They often come with lower interest rates with a limited amount of credit. This is a great way to build up your credit score without racking up a lot of credit card debt while you are in school.

Use this guide to figure out a way to pay for college without taking on too much debt. A college degree can help you unlock a better lifestyle, but only if you can pay off your debt on time.