If you’re heading off to college, you probably don’t have $32,405 sitting around in your bank account — you might not even have a bank account yet.
But that’s the average cost for one year at a private college today. After four years, you could be looking at a tuition bill of $129,620.
Of course, you have more affordable options when it comes to college, and your parents might help foot the bill. But whatever school you choose will come with a hefty price tag. So how can you pay for tuition, fees, and living costs? How can you manage your money strategically during college?
To learn more, I spoke with Mark Kantrowitz, a financial aid expert and publisher of Cappex.com. Here’s his best college financial aid advice for students and new grads.
1. Understand the different types of financial aid
Most students and their families don’t pay for college entirely out-of-pocket. They get help through financial aid.
“Financial aid is provided by the federal government, state government, the college itself, and private funding sources,” said Kantrowitz. To get aid, you must submit the Free Application for Federal Student Aid (FAFSA). Some colleges also require an additional form called the CSS PROFILE.
Although financial aid is sometimes referred to as an award, don’t assume that all financial aid is free money. Financial aid refers to both the money you don’t have to pay back (grants and scholarships) and the money you do (student loans).
2. Know how to get the most financial aid
If you want to know how to get the most financial aid, the date you submit the FAFSA could have something to do with it. Although the federal deadline is in June, you should fill out the FAFSA as soon as possible. The earlier you apply, the more financial aid you could get.
“A dozen states award state grants on a first-come, first-served basis,” said Kantrowitz. “If you file later, you may miss out on state and institutional aid, and even some campus-based federal student aid.”
Since the government looks at annual income, you or your parents should also be strategic about how much you have in the bank.
“Avoid artificial increases in income during the base year, such as realizing capital gains or taking a distribution from retirement plans,” said Kantrowitz. That way, the government is less likely to overestimate your expected contribution.
Despite your efforts, though, your financial aid package still might not cover the full cost of college. The federal government, for instance, sets a federal loan limit of $31,000 for dependent students and $57,500 for independent students (or dependent graduate students).
If your financial aid package falls short, you can try negotiating for more financial aid. “If you have special circumstances that affect your ability to pay for college, appeal to the college financial aid office for a professional judgment review,” advised Kantrowitz.
And if you still have a gap, consider whether you want to take out private student loans. Of course, first make sure you understand the terms of your agreement. If you take on too much debt, you could find yourself facing high student loan payments for 10 years or more after graduation.
3. Have a plan if you run out of money during college
Despite your best-laid plans, you might find yourself struggling to get by as a college student. If you run into financial hardship, speak with your college’s financial aid office about how to get help.
“Some colleges have emergency loan funds to help students who run into unanticipated problems,” said Kantrowitz. “The college’s financial aid administrator can also help you identify additional sources of funding.”
For instance, you can still apply for scholarships after you’ve started college. You could also consider a part-time job to make more money. Taking on additional loans is another option, but you should proceed with caution before adding to your debt.
Make sure to speak with a financial aid officer for advice. Taking out additional private student loans should usually be a last resort.
4. Avoid taking on too much student debt
It’s all too easy to take out student loans without thinking about the long-term consequences. After all, you could take out a loan for freshman year four and a half years before you have to start repaying it.
But repayment will kick in eventually, and you don’t want the burden of huge student loan payments just as you’re starting your career. To help out your future self, minimize the amount you take out in loans.
“The most common mistake students make with student loans is to borrow too much money,” said Kantrowitz. “They then treat the financial aid ‘refund’ as though it were free money, even though it usually comes from student loans, which must be repaid — usually with interest.”
One way to avoid over-borrowing is to estimate your first year’s salary out of college. Research a few jobs you’re interested in to get a sense of their average annual earnings. “Aim to have total student loan debt at graduation that is less than your annual starting salary,” advised Kantrowitz. “Ideally, a lot less.”
He also encouraged college students to live cheaply. Cutting down costs as a student is easier to do in college than afterward. “Live like a student while you are in school,” Kantrowitz said. “So you don’t have to live like a student after you graduate.”
5. Start developing savvy money habits today
Most of us never get a class in personal finance — we’re left on our own to sink or swim. That’s why you may need to take your money management into your own hands.
Find out if your school offers a financial literacy course, and rely on resources such as personal finance books and blogs. “Read one of the books by Suze Orman or Beth Kobliner,” suggested Kantrowitz. “They are a great way to learn how to manage your money.”
He also encouraged students to record their spending. You don’t necessarily need to set goals at first. Instead, become cognizant of how you spend your money.
“I often recommend creating a descriptive budget — as opposed to a prescriptive budget — where you track all of your spending every day by recording it in a spreadsheet or a program like Quicken or Mint,” said Kantrowitz. “Increasing awareness of your spending is the first step in exercising restraint.”
With practices like these, you’ll develop strong money habits for the rest of your life. Plus, you’ll be that much more prepared when it comes time to repay your student loans.
For more college financial aid advice, here’s how to avoid taking out more student loans than you need.
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