- Make affordability an important consideration when making the list of schools you are interested in.
- Scholarships, merit grants, and athletic scholarships are all sources of funding that you don’t have to pay back.
- This article is part of the Better, Smarter, Faster series, which focuses on the powerful choices you can make with your money to achieve big life goals.
As the cost of college increases year after year, more and more families are forced to borrow money to pay. While credit might be a necessary evil in some scenarios, these steps could help people determine if they can afford the schools out of pocket.
How Should You Factor Your Finances Into Your College Search?
Your financial situation should be at the center of your decision-making process.
Neeta Vallab is the founder of MeritMore, a search tool that allows students to estimate the amount of merit support they could receive from specific schools based on their grade point average and test scores. She said the most strategic way to avoid student loans is to apply to multiple schools that make financial sense for you.
Follow traditional college search advice and look for schools with areas of study and student organizations that interest you. Also, remember that affordability is a factor to consider.
“Don’t start with imagining a dream school,” Vallab said. “It’s important not to get so emotionally hung up on any particular school because you may have to make adjustments based on finances. Be open as you enter this that there are many good schools, many great schools and then you spread your expectations.”
Most students are familiar with the concept of safety, aim and reach of schools to adjust their academic profile to the likelihood of acceptance into different schools. Vallab said they can apply that thinking to their financial compatibility with schools, too.
“In addition to the likelihood of acceptance, you should also consider financial eligibility,” Vallab said. “You should assign affordable, stretchy and painful as your financially appropriate labels. And then when you look at your list and have a good list of schools that are affordable or that will be a stretch but you understand going into that process you are better prepared to accept an offer.
What options do you have for saving for college?
The sooner you start preparing for college expenses, the more time you have to build a war chest to pay for school.
Dawn Dahlby, the founder and president of consulting firm Relevé Financial Group, said planning for the college’s funding starts with consistent, small actions. Compounding your savings or investments helps make the final bill more palatable, she said.
“When you look at a big bill like college, it’s overwhelming,” Dahlby said. “People are starting to get really anxious and it scares them. And the only way to take away that fear and anxiety and stress of this big bill is with comprehensive planning.”
When putting money aside for college, families often choose one of two popular options:
A 529 plan is a special savings account designed to help cover college costs. The account holder designates a beneficiary, and the money in the account can be used tax-free for qualifying educational expenses such as tuition, books, and room and board.
The money in your account grows based on what type of investments you choose (usually mutual funds or exchange-traded funds, ranging from conservative to aggressive). You may also be able to choose a portfolio with a target date that matches your child’s age. These portfolios become more conservative as your child approaches college age.
“A 529 plan can help families create a financial plan that will cover those expensive college expenses,” said Amanda Push, a college researcher at Student Loan Hero. “It also allows you to get a better return on your money than if you just put that money in a regular savings account.”
Traditional or high-yield savings account
Banks and credit unions offer traditional or high-yield savings accounts that earn marginal returns and are federally insured. Your money doesn’t have the potential to grow like it would if you put it into a 529 plan or brokerage account, but you’re guaranteed not to lose any value either.
What are grants and scholarships?
Grants and scholarships are free sources of money that usually do not have to be repaid. You can receive target group-specific grants from the federal government.
There are two scholarships for students with exceptional financial needs, one for students who commit to teaching in a low-income school for four years, and another for students whose parents or legal guardians are serving as military personnel in Iraq or Afghanistan died. Learn more about the types of federal grants here.
Merit scholarships are often awarded on the basis of outstanding academic achievement and can help you pay for college without borrowing. Outstanding performance may include a high GPA, excellent ACT or SAT scores, or some other notable academic achievement.
According to Vallab, students who are in the top quartile of score and GPA for a particular school are generally good candidates for merit assistance. If you think you qualify, consider the average amount of credit the school gives out. If an award of this magnitude wouldn’t really help you defray the costs of this school, perhaps you should cross it off your list.
Athletic scholarships are often awarded for outstanding athletic achievement and usually require you to play one or more sports in order to qualify. Sports scholarship standards vary by school. Schools may also have different amounts of money available for specific sports.
How do you get more money?
After you’ve received offers of financial aid from multiple schools, you can negotiate the amount of money you’ve received from schools and pit offers against one another.
Vallab’s website has a tool that allows students to compare financial aid offers from different schools side-by-side and an appeal letter generator that families can use to create customizable appeals.
“It’s very hard to ask someone for money and you also find yourself in a situation where you’re just grateful that you came in,” Vallab said. “But that’s something that colleges expect. They don’t publish it, but it’s something that families can use and you can get some money off of your expenses.”
Students looking for cheaper options might also consider community college, which typically costs less than many universities. Domestic tuition is also typically cheaper than tuition in other states, so local schools could be a good place to start looking for a college in your price range. Consider taking advanced placement and dual matriculation classes in high school to reduce the number of credits you need to earn at a four-year university.
What if you’ve exhausted other options and need a loan?
Sometimes, no matter how well you’ve planned your college payments, you have no choice but to consider a loan.
“A lot of people end up in a position where they have to take out student loans, and that’s perfectly fine,” Push said. “This is not a student or family failure. Tuition, room and board are extremely expensive. Sometimes getting a loan is the way to go for some students and families.”
Federal student loans should always come before private student loans. They have the lowest interest rates and protection not offered by private lenders.
Consider the federal student loan deferral that the government has offered during the pandemic. While private lenders may have offered their own assistance to those in need, private student loan borrowers have not received this widespread benefit or kept interest rates at 0%.
Before you sign the dotted line, make sure you understand the interest rate you’ll be charged, the length of your repayment period, and the total amount of debt you’ll incur.
“Don’t let a large number of debts prevent you from making rational decisions about how to manage that debt,” Dahlby said. “You can research what’s available to you and work with a professional to develop a plan to help you reduce that debt.”