There’s no doubt that attending college in the U.S. today is incredibly expensive and, unfortunately, may becoming more so. President Trump’s recently proposed budget for 2018 calls for across-the-board education spending cuts of $9.2 billion, or 13.5 percent. Included in the proposal is a plan to end subsidizing the interest on student loans and the phasing out of the public service loan forgiveness program, which forgives the loans of borrowers after ten years of government or qualifying nonprofit employment.
It is unclear and, in fact, unlikely that the President’s budget will pass into law without changes. Nevertheless, students can expect that funding their college educations will remain a tremendous challenge in the coming years.
Below is a look at some of the most common ways of funding a college education, as well as a few suggested strategies to make the most of those resources. We’ve also included a few not-so-common funding ideas to help students find the money they need without accumulating a crushing debt load.
Student loans are available through federal and state government programs, as well as banks and other private financial sources. Federal student loans are by far the most popular, primarily because they offer lower interest rates and a range of payment options. Students must complete the FAFSA application in order to qualify for federal student loans.
For most students, paying for college will include taking on some level of student loan debt. The problems associated with college student debt are, of course, an issue of much public discourse. And for good reason. The statistics are disturbing:
- Outstanding student loan balances in the U.S. stood at $1.31 trillion as of December 31, 2016.
- The average student loan debt carried by a member of the Class of 2016: $37,172.
- 11.2% of outstanding student loans were either 90 days or more delinquent or in default as of the fourth quarter of 2016.
Here are a few tips to help those with student loans avoid the hazards of loan debt and the consequences associated with loan default.
- Only borrow as much money as needed to pay for school. Students are not required to take on the full amount of the loan they’re offered. The rule should be: If you don’t need it all, don’t take it all.
- Working while in college. Even a part-time or temporary job will cut down on the loan amount and/or help with loan repayment.
- Making loan payments before graduation. Not always possible, but starting to pay back a loan while still in school means less to pay later on.
- Pay more than the minimum monthly payment. Doing so will mean significant long-term savings in total interest over the loan period.
- Never ignore student debt. The debt doesn’t disappear when the student isn’t paying attention to it. If on-time payment becomes an issue, it’s always best for the borrower to contact the lender and explain the problem. Chances are the lender will be willing to work something out.
Everybody knows about scholarships. Or at least they think they do. The one feature of scholarships that everyone is most aware of is that they do not have to be paid back. Scholarships are everywhere, too. There are thousands of them, offered by professional associations, nonprofit organizations and charitable groups, private corporations and firms, government agencies, and even individuals. Colleges and universities themselves are also a big source of scholarship funds.
The key to landing a scholarship – or more than one – is for students to seek out and apply to those they are clearly eligible for. And that will require some real time and effort. Each scholarship has its own unique eligibility requirements. Many are merit-based (determined by factors such as standardized test scores, grade point average, specific artistic or academic talents, community service and extracurricular activity participation). Others require a specific background (ethnic or gender, for example). Financial need is also a common qualifying factor.
- Start Early: As mentioned, finding the right scholarships to apply for takes time and effort. The earlier students and parents start looking, the better. And that can mean as early as freshman year of high school, but certainly no later than the beginning of junior year.
- High School Resources: Guidance counselors are a high school campus’s key resource for college planning, and that includes financing. Students and parents should make full use of guidance counseling services when seeking out scholarship opportunities.
- Think National, State, Regional and Local: Scholarships are offered on all geographical levels. Many students don’t realize this and miss out on great opportunities, particularly those available from regional and local sponsors.
- Think Big and Small, and More Than One: It’s surprising how many students search for that one scholarship they’re most likely to land, thinking that it will cover all of their college costs. Finding such a scholarship is rare, however, especially today. Students and parents should plan on applying for several scholarships in large and small amounts alike.
- Extracurricular and Community Activities: Lots of scholarships take into account more than just an applicant’s academic record. Many consider those personal qualities that make a student special, and that often includes looking at their out-of-classroom experiences. Parents should therefore encourage their kids to participate in extracurricular activities and community service opportunities throughout their high school years.
- Don’t Stop the Scholarship Search Once In College: Plenty of scholarships are open – sometimes exclusively – to students who have been in college for a period of time.
Check out this U.S. Department of Education website for more information on finding and applying for scholarships.
Grants, like scholarships, are akin to “free money,” that is, they don’t have to be paid back. The main distinguishing factor between grants and scholarships is that while financial need is sometimes a factor in scholarship awards, it is the determining factor with grants. The largest college grant program, by far, is the federal Pell Grant program. Pell grants are awarded almost exclusively for undergraduate study. Other grant sources include state governments and some private organizations.
- Become Familiar with Pell Grant Qualification Requirements: Pell grants are awarded based on financial need. To receive a Pell grant requires filling out the Free Application for Federal Student Aid (FAFSA) form and providing all necessary supporting documents. And there are a lot of them – tax and asset records, list of potential colleges, etc. Students and parents should therefore educate themselves about grant qualifications and the FAFSA form requirements as early as possible.
- Check for Grants Opportunities at the Schools You’re Considering: Like scholarships, many colleges and universities offer grants exclusive to their students. Students should contact the financial aid department at each school under consideration to find out about available grants. The earlier the better.
Fellowships and Assistantships
Fellowships are normally awarded to students to carry out in-depth research on a specific topic within their major course of study. Assistantships involve working closely alongside faculty and staff in teaching, research and administrative positions. Fellowships and assistantships are typically available to graduate students only, but occasionally positions are made open to undergrads. Compensation for fellowships usually comes in the form of a living allowance or stipend. Assistants are typically compensated through payment of a stipend, tuition reimbursement, and additional fringe benefits.
- There’s really only one. Students must get to know the faculty and staff of their departments and, more importantly, make sure those faculty and staff members get to know them. A great way to start is by volunteering to help in studies and research projects carried out within the department.
Additional Strategies for Paying for College
- Crowdfunding: A surprising number of students are seeking money for college through crowdfunding. Even more surprising is that it seems to be working for a lot of them. Crowdfunding is the practice of seeking donations from friends and the general public for any number of purposes via crowdfunding websites. According to this Forbes article, GoFundMe, one of the most successful crowdfunding sites, has hosted over 130,000 campaigns for college funds over the last three years, raising $60 million from more than 850,000 donations. A list of other crowdfunding sites can be found here. One tip: You’re likely to be more successful raising money if you start your campaign before heading off to college rather than after you’ve accumulated your debt.
- Employer Assisted Funding: Students working a job will be interested to know that their employers may be willing to help fund their college educations. The federal tax code allows students to deduct tuition reimbursement payments of up to $5,250 a year made by an employer. The reimbursement is tax free for the employer, too.
- Tuition-Free and Work Colleges: Tuition-free colleges are ones that admit all of their students based entirely on merit, and guarantee tuition payment coverage – and in some cases, other costs as well – regardless of ability to pay. Funding packages include scholarships, grants, and – as a last resort – loans. Work Colleges are schools that integrate employment as a component of the student’s degree-earning process. There are currently eight federally-recognized Work Colleges in the U.S.
- Military and Other Service Opportunities: Military service provides a wealth of education benefits to current and veteran service members, including those available through the G.I. Bill. College benefits may also be earned through a service commitment to other federal government programs, such as the Peace Corps, AmeriCorps, National Service Corps, and ROTC.
- 529 Savings Plans: A great way to plan ahead for the expense of a college education is by funding a 529 savings plan. 529 plans are tax-advantaged accounts that allow the beneficiary to use the funds at nearly any accredited postsecondary institution in the nation. There are two major types of 529 savings plans: 529 College Savings Plans and 529 Prepaid Tuition Plans. One or both types are available in most states as well as the District of Columbia. Eligibility and other important rules vary by jurisdiction and specific plan. In most cases, plans can be established at anytime, but sooner is better than later in order to make the most of long-term savings. More information on 529 plans can be found on this IRS webpage.
There are, of course, a million other strategies for saving money for college, such as:
- Take lots of AP classes in high school.
- Spend two years at a community college before transferring to a four-year school.
- Consider living in off-campus housing or – better still – live at home.
- Work-study programs.
- Cooking your own meals.
Some students have even suggested selling blood or signing up as a guinea pig for medical studies. Going that far may be unnecessary. The point is that sometimes finding the money to pay for college requires a little creativity – along with the time and effort.