Once you’ve gotten accepted to the college of your choice, the real work begins. Most students will need to source funding from loans, grants, scholarships, work-study programs, college savings plans or funds from their parents’ savings accounts to help pay for college.
Affording college can be difficult. The National Center for Education Statistics states that the annual costs for tuition, fees, room and board were $17,237 for public schools during the 2016–17 academic year. Costs more than double for a most private, nonprofit institution, with an average cost of $44,551, while a private for-profit school could cost $25,431.
While many students take out loans to help pay for college, there are many options that can help you plan for and minimize the costs of higher education.
Resources for Funding a College Education
Find detailed information on student loans, choosing a school or program and resources for students with different backgrounds and needs.
Student Loan Details
Federal and private loans are a factor for many students, so understanding the key elements of borrowing funds for college can help you reduce and eliminate debt before and after college.
Whether you’re selecting a school for your young child or debating between online college programs, knowing the facts about different types of education can help you make the best decision for yourself or your family.
If you’re attending college for the first time, you may need additional support or resources. Learn more about filing taxes as a student, funding a semester or entire degree abroad and find additional student resources to help you ease into your academic career.
Paying for Higher Education With a College Savings Plan
There are six common types of college saving vehicles, each with their own defining features:
529 Prepaid Tuition Plan
- What is it? A low-risk, tax-advantaged plan. Payments purchase "units" or "credits" for future use at participating colleges or universities, essentially prepaying tuition fees. These plans are typically sponsored by state governments, requiring the account owner or beneficiary to be a state resident.
- What expenses are covered? Most plans are limited to tuition and mandatory fees. Some include room and board or other qualified expenses.
- What is the contribution limit? It varies between plans, but most have lifetime contribution limits of $300,000 or more.
529 College Savings Plan
- What is it? A tax-advantaged plan that allows owners to create individual investment accounts. Withdrawals cover expenses at any college accredited by the U.S. Department of Education. Investment options include age-based portfolios that shift toward more conservative investments as the beneficiary nears college age.
- What expenses are covered? Covers "qualified higher education expenses," which include tuition, room and board, mandatory fees, books, and computers (if required).
- What is the contribution limit? Most plans have lifetime contribution limits of $300,000 or more.
- What is it? Trusts, or custodial accounts, allow account holders to contribute money for the educational expenses of the beneficiary. Contributions are permanent gifts. Qualified expenses include not only college expenses, but also elementary and secondary school expenses.
- What expenses are covered? Qualified expenses cover college, elementary and secondary school costs, including tuition and fees, books, supplies, equipment, and room and board. Elementary and secondary school expenses can also include costs such as tutoring, uniforms, transportation, car insurance and special needs services.
- What is the contribution limit? $2,000 annually, as long as the beneficiary remains a minor (unless the beneficiary is a special-needs child). Allowable contribution amounts phase out as adjusted gross income rises.
- What is it? An individual retirement plan that allows you to apply already taxed income for any use in retirement, including the payment of another individual's college expenses. Withdrawals during retirement are tax-free.
- What expenses are covered? Distributions can be used for qualified education expenses, including tuition, fees, books, supplies, and room and board, provided the student is enrolled at least half-time in a degree program.
- What is the contribution limit? $6,000/year, if under 50; $7,000/year, if 50 or older for 2020.
UGMA/UTMA Custodial Account
- What is it? A custodial account opened through a bank or brokerage firm that is created in a child's name. Funds are used to pay for any expense, including college, provided it is for the child's benefit.
- What expenses are covered? Account funds can be used for any purpose, provided it is for the child's benefit.
- What is the contribution limit? None.
U.S. Government Bond
- What is it? Low-risk instrument that accrues monthly interest, which the bond holder receives upon cashing the bond. Specific U.S. government bonds, Series EE and Series I savings bonds issued after 1989, are eligible for the Education Savings Program. A fixed rate of return and tax-saving advantages are earned for higher education expenses.
- What expenses are covered? Qualified expenses include tuition and fees, course expenses, and sports, games or hobby expenses if they are part of a degree or certificate program. The cost of books and room and board are not qualified expenses. Qualified expenses must be incurred in the same year the bonds are redeemed.
- What is the contribution limit? Not applicable.
Paying for College With Financial Aid
Paying for college with financial aid is a necessity for most students, and comprises scholarships, grants, student loans and work-study programs. Scholarships and grants can be need-based or awarded based on academic merit; they’re ideal because they don't need to be repaid. Student loans are funds for school that must be repaid, and federal work-study programs provide need-based part-time employment to help students pay for college.
Depending on the type of financial aid, the funds can be used to pay housing expenses, renters insurance, transportation, textbooks, supplies and more. The cost of living during college can vary widely depending on where you attend school and could be much higher or lower than your hometown. The FAFSA can help you determine how to access specific types of financial aid and if you qualify for grants and other support.
Filing the FAFSA
The first step to see if you qualify for any type of financial aid is to fill out the Free Application for Federal Student Aid, or (FAFSA). The FAFSA is what assistance program providers review to determine the amount of assistance a student qualifies. These programs also take into account the student's expected family contribution (EFC), which is the amount the student's family can afford to contribute toward college expenses. If you want to receive financial assistance, including student loans and grants from schools, the federal and local government, you have to fill out the Free Application for Federal Student Aid (FAFSA).
Step 1: Get a Federal Student Aid ID.
Step 2: Gather all required documents, such as W2s, tax returns for the student and parents, bank statements and investment records, Social Security number, driver's license or state ID and alien registration or permanent resident card, if applicable.
Step 3: Find your FAFSA deadline: College aid deadlines vary from state to state.
Step 4: Start a FAFSA Application and click the "Start A New FAFSA button."
Step 5: Select your schools: The FAFSA allows up to 10 schools on the application.
Step 6: Determine your dependency status: The U.S. Department of Education needs to know if the student is a dependent or independent, which is a determining factor in aid awards.
Paying for College With Student Loans
According to the Federal Reserve, 62% of people aged 18–29 with an undergraduate degree had student debt in 2017. Before you take on a student loan, make sure you understand how they work and explore all your options. Knowing your earning potential after graduation can help you manage your debt-to-income ratio and your credit score, which can help you prepare to secure home loans and other purchases in the years to come.
Student loans come from four types of organizations: the federal government, state governments, private organizations and the schools themselves.
Federal financial aid eligibility is determined based on student and family information provided on the Free Application for Federal Student Aid (FAFSA) and considered for both subsidized and unsubsidized loans available to students and parents. Loans subsidized by the federal government enable students to use the funds interest-free until they leave school. Unsubsidized loans begin accruing interest as soon as the money is disbursed to the student. Frequently tapped federal financial aid options include Stafford, Perkins and PLUS loans.
Many states offer special loan programs administered by the State Department of Education. Each state sets its own rules. If you complete the FAFSA, you might automatically be considered for state loans, under some state plans. You might also have to complete a state form.
Banks and lending institutions lend their own money to students and parents. Private loans are often used to cover financing gaps when other types of financial aid and loans do not cover the amount you need. Because these loans are typically offered at a higher and sometimes fluctuating interest rate, students should try to exhaust other options before turning to private lenders. Private loans typically require a credit check. Few high school graduates have substantial credit histories, so many private loans require an additional promise to repay by an adult with an established credit history. That's why your parents might be asked to co-sign a loan you expect to pay back.
Some postsecondary institutions lend their own money to help students cover remaining costs after financial aid and personal funds have been used. Schools manage these loan programs on their own, so students interested in this type of funding should speak directly with the office of financial aid to determine interest rates, repayment options and lending limits.
Refinancing and Consolidation of Student Loans
If you’re juggling multiple federal loans, consolidation might ease the management of loans. Saddled with high-rate loans from private lenders? Refinancing can cut your interest payments. Refinancing replaces old loans with a new one at terms that are more favorable to you. In the case of both consolidation and refinancing, the new loan satisfies the old debt but creates a new obligation for the borrower.
If you have several loans, consolidation lets you replace a variable interest rate with a fixed interest rate. Consolidation does not lower your interest rate; you pay a rate calculated on the weighted average rate of all your loans. However, you can lower your monthly payments by taking longer to pay back the loan, a process called loan extension. You will pay less per month but more overall because you will be paying interest longer.
Because of that trade-off, the U.S. Department of Education urges borrowers to carefully consider loan consolidation that extends the payback period.
Paying for College With Grants and Scholarships
Grants and scholarships are gifts provided by an organization for you to use toward school tuition or other educational costs. Unlike with student loans, you have no obligation to repay any grant or scholarship you receive. Federal and state governments also award grants and scholarships. One well-known generous subsidy comes in the form of the federal Pell Grant.
In addition to grants from Uncle Sam and the states, billions of dollars of private scholarships are awarded each year. Scholarships can be based on academic merit, background, interests, or financial need.
Paying for College as a Veteran
Veterans of U.S. military members are uniquely eligible for academic benefits. If you served on active duty after September 11, 2001, and were honorably discharged, you may qualify for the Post-9/11 GI Bill, which provides funding for annual tuition, plus money for housing and books. If your service ended before 9/11, you might qualify for the Montgomery GI Bill, which also provides funds for veterans over several years. These are just two of the many grants and education assistance programs available to veterans.
Students who have met the requirements for 100% reimbursement in the Post 9/11 GI Bill are also eligible for Yellow Ribbon benefits, by which degree-granting institutions absorb some or all of the tuition and fees not covered by the GI Bill.
Veteran students should also look into the cost-saving benefits of purchasing a home versus renting. VA home loans require no down payment or mortgage insurance, have low to no closing costs, and are easier to qualify for which makes it an ideal option for Veteran students.
Financial Aid for Graduate Programs
The grant, loan and scholarship process for graduate school also begins with the Free Application for Student Federal Aid (FAFSA).
Federal grants provide funds for graduate school, but unlike loans, grants do not require a student to pay back the grant amount. Review your options for grant programs such as the Teacher Education Assistance for College and Higher Education (TEACH) Grant or the Pell Grant.
Similar to the process for securing funding for an undergraduate degree, graduate degrees are likely to be financed by a combination of student loans, grants, scholarships and work-study programs. Many graduate students have additional expenses that they may not have had while attending an undergraduate program. While you may have lived on campus as an undergraduate student, many graduate students live and work off-campus and have additional expenses like auto loans with gap insurance and mortgages with homeowners insurance. These added expenses make securing funds for education even more important.
Other Options for Paying for College
Laura Longero is an award-winning writer and editor who lives in Reno, Nevada.
U.S. Department of Education. “Federal Student Aid: Work-Study Jobs.” Accessed April 4, 2020.
U.S. Department of Education, National Center for Education Statistics. “2015–16 National Postsecondary Student Aid Study (NPSAS:16).” Accessed April 4, 2020.
U.S. Department of Veterans Affairs. “Montgomery GI Bill.” Accessed April 4, 2020.
U.S. Department of Veterans Affairs. “Post-9/11 GI Bill.” Accessed April 4, 2020.
Federal Reserve. “Report on the Economic Well-Being of U.S. Households in 2017 - May 2018.” Accessed April 6, 2020.