Applying to college is a nerve-wracking experience. You spend months developing the perfect admissions essays, submitting applications to your favorite schools, and holding your breath as you wait for a response from each college.
Finally getting that admissions letter is a huge accomplishment, but your education journey is just beginning. After getting into college, you now have to figure out how to pay for it.
College is expensive — a single year at a public university for an in-state resident costs $9,650, on average. Choose a private school, and you’re looking at an average annual cost of $33,480.
Few people have that kind of money in the bank. Instead, they must find other ways to finance their education. If you can’t afford your tuition and fees upfront, you could qualify for three forms of financial aid: grants, scholarships, and student loans. Here’s how each type of funding works.
Grants are one of the best forms of financial aid you can receive because they’re free money. That means you don’t have to repay the grant after you graduate, in most cases. Grants can dramatically decrease your education costs and reduce how much you need to borrow when it comes to student loans.
There are both federal and state grants available to students.
The U.S. Department of Education (DOE) offers federal grants to students based on financial need, academic merit, or the field you intend to study. Depending on your field and grade level, federal grants can range from $100 to nearly $6,000 in value.
To be considered for a federal grant, you must complete the Free Application for Federal Student Aid (FAFSA). The government uses your FAFSA to determine your Expected Family Contribution (EFC), which is the amount you’re expected to pay toward your education. The lower your EFC, the more likely you are to receive a grant.
However, the DOE awards grants on a first-come, first-served basis. That’s why it’s a good idea to submit your FAFSA as soon as possible to ensure you have a better chance of getting aid.
Beyond the federal government, there are many state-issued grants available to help you pay for school. Like federal grants, state grants can range in value. Depending on where you live, you could receive thousands of dollars to pay for school.
Most states require students to complete the FAFSA to be eligible for aid. However, some states might have additional eligibility criteria you must meet to qualify for a grant.
For information about opportunities in your state, check out this guide to state-specific grants.
Scholarships are another form of free money that can make school more affordable. Schools and private organizations offer scholarships to both new and returning students.
Unlike grants, which are often based on financial need, scholarships can be based on academic, athletic, or personal achievements.
Some awards will cover the complete cost of college attendance, including room and board, while others will provide just enough to cover textbooks or fees. There’s no limit to how much scholarship aid you can receive; you can combine multiple scholarships to pay for some or all of your college costs.
Many private and public schools offer scholarships to talented and diverse students, ranging in value from a full-ride scholarship to smaller scholarships of $1,000 or less. In most cases, colleges offer scholarships for students in the following categories:
- Academic achievement: If you have a high GPA or SAT score, you might be able to qualify for an academic scholarship.
- Athletic excellence: If you’re a skilled football player, swimmer, or excel in another sport, you might be eligible for an athletic scholarship.
- Minority groups: To encourage diversity, some schools offer scholarships to minority groups, such as first-generation undergrads or African-American students.
Each school has their own eligibility requirements and application process. To find out what scholarships are available and how to apply, contact your school’s financial aid or admissions office.
Scholarships from private organizations
Another popular source of scholarship assistance is private organizations. You could win a scholarship from a local company, a national nonprofit organization, or even your neighborhood church. Like school-issued aid, scholarships from private organizations can vary greatly in value.
Scholarships from private companies have different eligibility criteria. Although school-issued scholarships tend to be focused on academics or athletics, you can find private scholarships that apply to unique situations and interests. For example, if you’re a redhead or a talented duck caller, there are scholarships for you.
For more information about finding and applying for scholarships, check out this guide for high school seniors.
3. Student loans
If you’re ineligible for grants and scholarships or simply need more financial assistance to cover your education costs, another funding option to consider is student loans.
Unlike grants and scholarships, you must repay student loans. Depending on the type of loan you get, you could face high interest rates that cause your loan balance to grow significantly over time. Because of interest charges, student loans should be your last resort when paying for school.
There are two types of student loans: federal and private.
Federal student loans
If you have to borrow money to pay for college, federal loans should be your first choice. They often have lower interest rates and more generous repayment terms than private loans, making them the more affordable option. Even if you have poor credit or no credit, you can likely still qualify for federal aid.
For those who can show a financial need, you might even be eligible for subsidized federal loans. With subsidized loans, the government covers the interest that accrues on your loans while you’re in school, during the grace period after graduation, and during deferment. That perk can help reduce how much you repay over time.
Even better, many federal student loan borrowers qualify for income-driven repayment (IDR) plans, which can make repaying your loans easier. Under an IDR plan, your loan payments are capped at a percentage of your income and your repayment period is extended. Entering into an IDR plan can cut your payments down to a monthly bill you can actually afford.
There are four types of federal student loans available:
- Direct Subsidized Loan: Designed for undergraduate students with financial need, you can borrow up to $5,500 per year to pay for school.
- Direct Unsubsidized Loan: Unsubsidized loans are available to undergraduate and graduate students. You can borrow up to $20,500 per year to pay for college. Unlike subsidized loans, you are responsible for all interest charges that accrue.
- Direct PLUS Loan: For graduate students and parents who want to help their child pay for school, PLUS Loans allow you to borrow up to the complete cost of attendance.
- Direct Consolidation Loan: After graduation, a Direct Consolidation Loan can be a useful tool to simplify your monthly payments. Your loans are combined into one loan with one easy payment.
You can find out more information about federal loans, their repayment benefits, and the application process in our federal student loan guide.
Private student loans
If you’ve exhausted your federal loan options and still need money to cover your college bill, private student loans can be a useful tool. Rather than coming from the government, private student loans are issued by banks, credit unions, online lenders, and other financial institutions. Most lenders allow you to borrow as much as you need to pay for school.
Unlike federal loans, which usually do not require a credit check or minimum income, private loans often have strict eligibility requirements. Lenders typically require high credit scores and a reliable income to approve you for a loan. If you don’t meet their standards, you might need a cosigner — someone with good credit and a steady salary who acts as a guarantor on the loan — to get approved.
Private student loans can have fixed or variable interest rates. The rate you’re ultimately approved for will depend on your creditworthiness and financial history. According to the Institute for College Access & Success, rates could be as high as 13.74%.
In addition, private loans are ineligible for federal benefits such as IDR plans and Public Service Loan Forgiveness. That’s why it’s so important to understand the benefits and drawbacks of private student loans before you apply.
If you’ve done your homework and have decided that a private student loan is right for you, check out our list of recommended lenders.
Paying for college
Although college is more expensive than ever before, there are many resources to help you afford your education.
To ensure you get all the financial assistance you’re entitled to, your first step is to complete the FAFSA. Our step-by-step guide can help you through the process.
Need a student loan?Here are our top student loan lenders of 2018!
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