According to CollegeBoard, the cost of tuition, fees, and room and board has gone up about 162 percent at private nonprofit four-year colleges since 1971 when adjusted for inflation. Public schools have seen an increase of 142 percent in in-state tuition, fees, and room and board over the same time period.
College is an expensive endeavor, yet we know that those who hold bachelor’s degrees make an average of $1 million more over the course of their lives than those who do not. Higher education is still worth investing in, even if prices have increased astronomically.
Today we’ll look at how to evaluate the costs of college and how to get your education funded.
Part I: How Much Does College Really Cost?
When you first look at the cost of tuition and fees, room and board, and meal plans, most colleges appear oppressively expensive. Appearances are sometimes deceiving. The first number most people find is the advertised sticker price, and it isn’t what you end up shelling out for your education.
The number you actually end up paying — the net price — is usually lower for most students. Net price is how much the school charges minus the amount of financial aid you are awarded.
Net price vs. sticker price
If you already know how much financial aid you will be receiving, you can subtract that number from your school’s sticker price. The difference will be your net price.
If you want to get an estimate of the net price prior to applying, you can search for your school’s calculator via the U.S. Department of Education. There are some things to keep in mind as you use these calculators:
- The numbers they produce will be estimates only, and are not guaranteed.
- Some calculators base all calculations on in-state tuition. If you’re an out-of-state student, be mindful that your costs may be higher unless explicitly stated otherwise.
- Some calculators base their numbers on financial aid opportunities available to first-year students. There is usually more funding for freshmen, so you can expect the subsequent three years to be more expensive.
Nonprofit vs. for-profit schools
Nonprofit schools tend to cost a good deal less than for-profit institutions. And, when you look at the net price of for-profit schools, they can cost even more than private nonprofit schools.
This is because for-profit schools offer less institutional aid — or financial aid through the college itself. Instead, they rely heavily on federal financial aid for the funding of their students’ education.
As a result, students who attend for-profit schools generally wind up with far more student loan debt after graduation. With 59 percent of students enrolled in a certificate or associate’s degree program, average student borrowing per year was at $6,179 for the 2011-12 school year compared to an average of just $953 at comparable public, nonprofit two-year institutions, according to a recent analysis by the Brookings Institution.
Because of this, the bulk of their advertising efforts are focused on low-income students who qualify for maximum federal financial aid. These students should be careful to weigh net prices at nonprofit institutions before agreeing to attend a for-profit school based on the sticker price.
Nonprofit institutions will offer more scholarships and grants, reducing the number of loans — and therefore debt — they have to take on.
Public vs. private school tuition
The sticker price on a public college is undoubtedly lower than that of private institutions. However, many private schools have large endowments providing substantial student aid at the institutional level. This aid is often extended to middle-income families even if they don’t qualify for a large amount of aid through federal programs.
For example, Cornell University offers significant grants to students from families with under $60,000 in annual income as long as their assets are under $100,000. In an example generated by the university, a traditional student from a household with $51,000 in annual income can qualify for over $64,000 in institutional grants — even when they hold personal assets of $3,000.
In this example, the student’s net price is a whopping $3,450 for one year at an Ivy League university.
What college expenses should I be prepared for?
Part II: How to Pay for College
There are several different ways to find money for college expenses. If you stay on top of financial aid application deadlines and have a high GPA and high test scores, you can easily shave tens of thousands of dollars off your cost of attendance.
In this section, we’ll cover the most common sources of college funding.
The Free Application for Federal Student Aid (FAFSA) is the single most important document you will likely fill out as a college student.
Because without the FAFSA, you won’t be able to access the majority of the best financial aid options we are going to cover in this guide. Those include:
- Work-study opportunities
- Federal student loans
- Direct PLUS Loans for parents
Not only will the FAFSA tell you how much aid you are eligible for through the federal government, but it is also a required step to getting institutional financial aid from your college or university.
How to fill out the FAFSA
It’s important to note that you do not have to pay to file the FAFSA. It is entirely free.
Go to https://fafsa.gov/ to create a Federal Student Aid account and start your application.
Important: You must fill out a FAFSA every year that you attend college.
Expected Family Contribution
The Expected Family Contribution (EFC) is how much the federal government determines you or your parents should be able to contribute to your education costs. This number is then used to figure out how much aid the government is willing to extend to you.
For example, to qualify for a full Pell Grant in the 2017-18 school year, your family’s expected family contribution can’t be higher than $5,328.
Some states have stricter deadlines than the federal government. Check your state’s deadline to be sure you get your application in on time.
It should be noted that students interested in FSEOG Grants and Perkins Loans should apply as soon as possible, as these funds are doled out on a first-come, first-served basis and actually do run out.
The final form of aid distributed by the federal government is student loans. You will know which federal student loans you qualify for after you fill out your FAFSA.
Because student loans will have to be repaid with interest, they should only be pursued after you have exhausted all grant, scholarship and work-study options.
Types of federal student loans
As an undergraduate student, there are a variety of federal student loans you may be offered.
Direct Loans, both subsidized and unsubsidized, come with the advantage of income-driven repayment options. There are also generous deferment, forgiveness and cancellation programs offered.
Important: You should be absolutely sure that you have maxed out your federal student loan eligibility before turning to private loans. Federal student debt often has better rates than private loans and a range of flexible repayment options.
Private student loans
If federal student loans aren’t enough, you can turn to private student loans as a last resort for college financing. These loans from banks, credit unions and online marketplace lenders do not have the same generous repayment programs, though some may have deferment options in some situations, such as unemployment.
Private loans come with variable or fixed interest rates. At this moment in time, interest rates are low. If you take out a variable interest rate loan, the rate is likely to go up over the course of your loan. Fixed interest rates start higher, but remain stable throughout the course of your repayment.
Should I get a co-signer?
If you haven’t yet established credit, you will likely need a co-signer in order to qualify for private student loans. If you’re a nontraditional student and have a less-than-stellar credit history, you’ll likely also benefit from having a co-signer.
If you have a good credit score, you can skip the co-signer. But if you do need some help, look for loan options with a co-signer release. This lets the co-signer off the hook after a certain period of time — generally once your payment history has allowed you to establish a better credit history yourself.
You don’t want to borrow more than you can reasonably afford to pay back. Certain professions that require extensive education, like doctors and lawyers, will have considerably more student loan debt than other professions.
However, some professions, such as teaching, may require a master’s degree in some regions. Four years of undergrad plus grad school isn’t cheap, but a teacher’s entry salary typically doesn’t make up for all of your education expenses.
In these situations, talk to professionals in the field you want to enter to find a reasonable expectation for entry salary and potential salary growth over the course of a career. While using online sources to find this information is great, it’s not going to replace the regional knowledge of a professional working in the field.
You can then plug that number into CollegeBoard’s Student Loan Calculator, along with how much money you intend to borrow. It will analyze and tell you if your monthly payments will exceed 10 to 15 percent of your monthly income — which is generally considered to be the absolute maximum you should allot to student loan payments.
If you take out federal student loans, you may be able to borrow more as most loan options allow you to pay based on your income level. Just be careful not to bury yourself in debt — you don’t want to be paying student loans into your seventies.
You won’t find scholarships on the FAFSA, but they’re a great alternative to student loans. When you are awarded a scholarship, you receive free money for school that you never have to pay back.
Merit-based vs. need-based scholarships
While the majority of grants are need-based, the majority of scholarships are merit-based. There may be maximum income levels or priority given to those in dire financial straits, but for most scholarships, you’re going to have to do a little bit of work beyond filling out an application.
Most scholarships will require you to maintain a certain GPA, though standards vary wildly. Almost all scholarships will require some type of essay. Traditionally, this is done in written format, but in 2017 some scholarship essays can be done via multimedia such as video.
If your family’s income doesn’t help you establish a strong financial need, don’t lose hope. There are plenty of scholarships out there that have no financial requirements and are completely based on your essay — on rare occasion, they won’t even ask about grades.
Recurring vs. one-time scholarships
Most scholarships only last one semester or one school year. However, there are some you can apply for that will cover your entire tenure as an undergrad. Keep in mind that these options are likely to require you to maintain a certain GPA throughout your studies.
How do I find scholarships?
The first place you can look is your financial aid office. Many schools have endowments not just for grants but for scholarships as well.
After you have exhausted scholarship options at your school, look in places such as:
- Professional organizations in the field you want to enter
- Professional organizations or unions your parents may belong to
- National student organizations related to your major
- Potential future employers — especially if they’re a larger company
- Within the community you grew up in
- Organizations based on your ethnicity or heritage
- Religious organizations
- Organizations related to any extracurricular activities or hobbies
You can look for scholarships on major search engines, like Fastweb, CollegeBoard and Scholarships.com, but you’ll find a ton of competition. If you can look for scholarships focused on what makes you unique, you’re likely to find a dramatically smaller applicant pool, boosting your chances of winning an award.
How soon should I start applying?
Start applying for scholarships as soon as possible. It is possible to fund your education this way in its entirety, though you will have to fill out a lot of applications and write a lot of essays. The sooner you get started, the better.
Each scholarship has a window, which is typically opened annually or once a semester, in which you can file an application. While high school sophomores will be able to apply for some scholarships, opportunities really start opening up in your junior year.
Grants are money you never have to pay back unless you drop out of school or in some other way violate the terms of agreement. In undergraduate studies, they are typically need-based.
In order to qualify for federal grant programs, you must fill out the FAFSA and meet eligibility requirements. There are four types of federal grants:
Federal Pell Grants are distributed based on income-eligibility only. They can be granted to full-time, three-quarter-time, half-time or less-than-half-time students.
For the 2017-18 school year, the maximum Pell Grant awards are:
- $5,920 for full-time students
- $4,440 for three-quarter-time students
- $2,960 for half-time students
- $1,480 for less-than-half-time students
These awards are distributed in two parts over two semesters.
During the summer of 2017, Summer Pell Grants were awarded for the first time since 2011. These grants gave you an additional 50 percent of the full award to spend on summer studies — particularly helpful to community college students whose course of study typically runs through the summer.
The 2017 expansion was part of a budget deal passed by Congress in May affecting only one school year. Whether Summer Pell Grants will be available for the 2018-19 school year or any other future years still remains up in the air. Legislation for the permanent reinstatement of Summer Pell Grants was introduced in the Senate in April, but received no vote.
Federal Supplemental Educational Opportunity Grants (FSEOGs) are available to students with financial needs in excess of what the Pell Grant can address. These funds are distributed to schools up front, and then awarded on a first-come, first-served basis.
The maximum award is between $100 and $4,000, depending on your personal financial situation.
Iraq and Afghanistan Service Grants
If you lost a parent while they were serving in the military in Iraq or Afghanistan post-9/11, you may be able to get a full Pell Grant regardless of your family income through the Iraq and Afghanistan Service Grant.
In order to qualify, you must:
- Meet all Pell Grant requirements save EFC requirements.
- Have lost your parent before the age of 24 — or while you were enrolled in college at least part time at the time of your parent or guardian’s death.
Over the next couple of years, the maximum award for this grant will be reduced thanks to budget sequestration. If your grant is distributed prior to Oct. 1, 2017, you will receive a maximum award of $5,511.52.
If your grant is distributed between Oct. 1, 2017, and Oct. 1, 2018, you will receive a maximum award of $5,529.28.
If you are planning on becoming a teacher, you may be interested in a Teacher Education Assistance for College and Higher Education (TEACH) Grant. In order to qualify, you must be enrolled in a TEACH-eligible program. Not all schools participate, and the ones that do determine which of their programs qualify for TEACH Grants, so be sure to sit down with your financial aid counselor to determine your potential eligibility.
When you accept a TEACH Grant, you are agreeing to serve four out of your first eight years in the workforce in a high-need specialization in a low-income area. You can also meet this obligation by teaching at a Bureau of Indian Education school.
High-need specializations include:
- Bilingual education
- English language acquisition
- Foreign languages
- Special education
- Reading specialists
- Regional needs, which are updated annually
If you do not keep your promise to serve in this capacity, your grant will turn into a Direct Unsubsidized Loan, which will have to be repaid.
The maximum grant amount is $3,724 if disbursed prior to Oct. 1, 2017. If disbursed between Oct. 1, 2017, and Oct. 1, 2018, the maximum award is $3,736.
Your state may also issue need-based grants. Generally you will be redirected to your state’s application page at the end of your FAFSA application, but if you want to check out your options beforehand, you can find information from your state’s department of higher education here.
Your college or university may also issue need-based grants. While your EFC is not likely to be measured in the same way, a FAFSA application is still required in order to be considered.
Some colleges, though typically not Ivy League schools, will offer merit-based grants, as well. Your grades will be a factor here.
Work-study programs are another form of aid that will not be accessible unless you complete your FAFSA.
Many schools participate in federally backed work-study programs for students with a financial need. You are assigned a set amount of hours dependent on your financial need. You may find yourself working for the school, in a community service role, or in a field relevant to your course of study.
Work-study programs pay at least minimum wage and pay at least once per month. You can choose to receive a monthly paycheck or have your pay directly counted against any money you may owe the school.
Your eligibility for work-study will be determined by your FAFSA application.
529 accounts are tax-advantaged accounts to help you save for future college expenses. Contributions go in after you’ve paid taxes on your income. That money is invested and grows tax-free — as long as you spend the money on qualified educational expenses.
Types of 529 accounts
Not all 529 accounts are created equal. They are issued by state, and each state has specific rules on how their 529 accounts can be used. However, many states will let you purchase their 529 accounts even if you are not a state resident.
There are two basic kinds of 529 accounts.
College Savings Plans
The College Savings Plan structure allows your money to grow in traditional investments as made available by your state. You can use this money to pay for school at almost any U.S. institution — and even some schools abroad.
When you take money out, it will be based on the real dollar value your investments have grown to. For example, if you have $20,000 in your account, you would be able to take $20,000 out. If school cost $25,000, you would still have to find $5,000 to fund the additional tuition and fees not covered by your 529.
Utah’s 529 plan is a College Savings Plan, and commonly cited as one of the best in the nation.
Prepaid Tuition Plans
Prepaid Tuition Plans allow you to save for tomorrow’s college at today’s rates. There may be different tiers of saving for different types of schools.
For example, Pennsylvania’s Guaranteed Savings Plan 529 option currently allows you to buy credits at 2016-17 rates. These credits will be valid when your child goes to school in the future — even if tuition rates have skyrocketed.
One thing to be careful of with Prepaid Tuition Plans is that if you save at the state school level, and your child ends up not wanting to attend a state school when they graduate from high school, you could run into some funding problems. Pennsylvania allows you to change your investment tier at any time, but this is a potential point of friction you should consider at the outset of your 529 decision.
What can I use my 529 account for?
You can only use the money in your 529 account for qualified educational expenses. If you use the money for anything else, you will have to pay taxes on the withdrawal.
Qualified educational expenses include:
- Tuition and fees*
- Room and board — though you must be enrolled at least half-time to claim this expense
- Technology required for school — including internet access
- Required equipment and materials as dictated by your professor
*Some Prepaid Tuition Plans cover tuition and fees only.
How to make a 529 withdrawal
Most programs allow you to make a withdrawal online or via postal mail. Your 529 account issuer will not keep records of how that money was spent. Producing documentation to show that the money was spent on educational expenses falls squarely on your shoulders.
Pros of 529 accounts:
- Studies show that regardless of how much you save, the fact that you are saving for college makes your child more likely to attend college.
- If you have a high enough income level, your child may not qualify for need-based financial aid. Saving in a 529 plan is a generous investment in their future given that they won’t have as many funding opportunities available to them.
- Because you are investing, your money is likely to grow — and grow federally tax-free at that. This means you won’t have to save as much in a College Savings Plan in order to meet your goals.
Cons of 529 accounts:
- The amount you have saved could reduce institutional aid — especially if you open the account in your child’s name. Open the account in your name and list your child as a beneficiary instead.
- When saving in a Prepaid Tuition Plan, do your best to ensure you’re saving at a level your child will actually be able to use. If they don’t end up going to school in state, you could hit a bump in the road if you’ve been saving at state school tuition levels.
- Because you are investing, there’s no guarantee of growth. You could conceivably lose money in a 529 account.
To figure out if your college degree is worth the cost, you need to figure out the net price of your education and your expected salary. A good tool to figure this out is College Reality Check.
Funded by the Bill & Melinda Gates Foundation, College Reality Check helps you estimate the net price of your school based on a number of different factors. Then it shows you how much you can expect to make upon graduation.
Technically, you’re only allowed to spend federal student loans on educational expenses. These can include:
- Tuition and fees.
- Room and board
- Books, supplies and equipment
- Transportation while at school
- Dependent child care expenses
No one will be monitoring your bank account. However, if you end up having the money to go on shopping sprees after you’ve paid for all of the above expenses, you’re probably borrowing too much. Consider returning the money rather than paying interest on it after you graduate.
Check your loan agreement with non-federal lenders for specific restrictions on private student loans.
If at all possible, yes. Make an effort to make at least interest-only payments. This will keep interest from accruing while you’re in school and deferment, which costs you more money in the long run.
The only time it doesn’t matter as much is when you have Direct Subsidized Loans — which will not accrue interest while you’re in school. Even then, making principal payments early isn’t a bad thing if you can swing it.
If you take out a Direct Loan, you will be assigned one of nine loan servicers. You will make payments through your assigned loan servicer.
Those who take out Perkins Loans will repay directly through their school or a loan servicer designated by their school.
You can repay private loans through your lender.
If you miss one payment on your federal student loans, you will have to make it up before 90 days — otherwise you get reported to the credit bureaus.
If you miss several payments on your Direct Loans and don’t make payments for 270 days, you will be in default, which puts you at risk of not only being reported to the credit bureaus but also losing all benefits of federal student loans like income-driven repayment options. You could also end up in court.
Consequences for Perkins Loans and private student loans depend on the agreement you sign prior to disbursement, but they can report you to the credit bureaus as soon as you are 30 days late with a payment.
If you have Direct Loans, get on an income-driven repayment plan. These plans tie your maximum payment to a percentage of your disposable income.
If you have a private loan, you may want to look into refinancing for lower monthly payments.
If you have a Perkins Loan, set up an appointment with your financial aid office or loan servicer to discuss your options.