How Does Paying for College Work? Your Guide to Tuition

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Although covering college costs can seem insurmountable, there are lots of ways to pay for it, including federal and private loans for students and parents, grants, scholarships and working while in school.

But, how does paying for college work? And how does tuition work?

This guide can help answer these pressing questions, plus review finer details like when and how to pay tuition, with the possibility of using your school’s payment plans.

When you go to college, there are a number of costs you’ll have to pay. In addition to tuition, you’ll also have to pay for books, room and board (unless you’ll continue living at home); lifestyle expenses, including food and entertainment, and additional costs, such as car payments if you drive to school, and travel expenses if you want to study abroad.

Tuition and school fees, along with room and board, are usually your most significant expenses. However, other college expenses still add up to thousands of dollars each year, so you’ll need to factor these other costs into your college payment plans.

How does tuition work?

Tuition — the price colleges charge students to attend classes — is the first thing students need to plan on paying.

Students may also need to pay other fees for enrollment, in addition to tuition. For example, summer classes at the University of Buffalo cost $295 in tuition per credit hour, with additional fees including a comprehensive fee, academic excellence fee, activity fee and transcript fee.

The costs of tuition vary by institution; if you’re concerned about paying for college, looking for schools — perhaps with the help of the Department of Education’s College Scorecard — with low tuition is a good way to keep costs under control.

Tuition at a two-year college for in-district students is typically the least expensive option, followed by state school tuition for in-state students, state school tuition for out-of-state students and tuition for private four-year colleges.

Because tuition is much lower at some schools than others, one of the best ways to make paying for college easier is to opt to at least start your education at an inexpensive school. To help lower costs, you could complete many of your credit hours at a community college and then transfer to a state or private school that was on your initial college list.

Of course, even tuition at a two-year college still costs thousands. Most students do not pay the full tuition out-of-pocket. Instead, they receive financial aid that helps to cut the costs of tuition.

When do you pay for college tuition?

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College must be paid for before you attend school or when you are attending. Paying college tuition on time is essential, as many colleges will not allow you to register for classes until your tuition has been paid and many colleges will drop you from courses if your tuition is late.

Is tuition per year or per semester?

Different schools have different rules for when college tuition is due, but you’ll usually need to pay before the start of each semester or at the beginning of each trimester or semester.

For example, at some colleges, tuition for the fall semester might be due in August, while others might require payment for the fall semester to be paid later.

The bursar’s office at your college should provide you with information on exactly when payment is due. Schools may also charge late registration fees or impose other late charges if you fail to make tuition payments by the deadline set by the school.

Most schools do not require you to pay tuition for the entire year up front. However, if you receive financial aid, the grant or loan you receive typically covers a full academic year. According to the Department of Education, when you receive a grant or loan for the full academic year, your school typically pays out your money once per term, or twice per academic year.

If it is too hard for you to pay your entire tuition when the semester first starts, you can discuss with your school how college payment plans work so you can find out if choosing a payment plan would make attending school more affordable.

How do college payment plans work?

Many schools also offer flexible payment plans to make it easier to afford the cost of tuition. In fact, there are several different creative financing plans at most academic institutions.

These financing plans could include prepaying all four years of tuition at the beginning of your education to lock in a lower rate, or making monthly payments so you can spread out your tuition cost and not have to pay the entire amount all at once.

Making monthly payments for college can make it much easier if you are trying to work your way through school since you can pay a smaller amount at a time. Although you are not typically attending school for the full 12 months of the year, the repayment plan could still allow you to stretch your payment out over 12 months.

However, some schools charge for monthly payment plans or other extended payment arrangements. If your school charges fees, you’ll need to factor in this added cost when deciding if you should make monthly payments for college.

What are the other options to pay for college?

Whether you pay tuition at the start of the school year, the start of each semester, upfront for four years or on a monthly basis, you’ll need to make sure you have the money to cover your costs.

Before you start school, you should have a plan not only to pay for tuition, but also to cover your other expenses including room and board, activity and academic fees, and other costs of living.

Most people use a mix of different strategies to pay for college. Many students rely on funds that do not have to be paid back, such as scholarships and grants, as well as money from relatives, friends and parents. However, loans are a major source of college funding, and both parents and students borrow to pay for school. The fact that students often need so many sources of funds for college shows just how expensive college has become and how challenging it is to find the funds to pay for it.

You can obtain the money for school from:

Grants and scholarships

Because you do not have to repay grants and scholarships, they should typically be your first choice when exploring ways to pay for college. Grants and scholarships can come from many different sources.

Students should start looking for scholarships in their junior year. There are many different sources of scholarships and grants, including:

  • Federal grants, including Pell Grants, Federal Supplemental Educational Opportunity Grants and Teacher Education Assistance for College and Higher Education
  • State grants, such as New York’s new Excelsior Scholarship Program
  • Grants and scholarships from the school you are attending
  • Scholarships from employers, labor unions and professional organizations
  • Scholarships from churches and community groups
  • Scholarships from volunteer organizations
  • Scholarships offered by banks and credit unions
  • Scholarships from charitable organizations
  • Scholarships from health organizations
  • ROTC scholarships
  • Veterans’ services organization scholarships

You should ideally begin looking in your local community, as there may be less competition and it may be easier to obtain a scholarship if you start with organizations that you and your family and friends are members of. Scholarship search tools like Fastweb and MoolahSPOT can all help you to find national grants and scholarships to apply for as well.

Personal savings and financial help from parents or other relatives

If you or your family have savings, tapping into savings is often the next best option to pay for college after you’ve exhausted scholarship and grant opportunities.

You and your family are expected to contribute if you have assets available and, in fact, when you complete college financial aid forms, you need to provide information about you and your parents’ income and financial accounts to determine your expected family contribution.

However, while using savings is a good way to cover college costs, parents typically shouldn’t compromise their retirement security by foregoing retirement savings or cashing in retirement accounts to cover college costs. While there are loans available to pay for a student’s education, no loans are available to fund retirement and parents don’t want to be broke as seniors because they’ve spent all their savings on college.

Working while in school

If your goal involves paying for college tuition without loans, work-study programs or freelancing during school could help cover the costs of college and likely should be a top option after exhausting scholarships, available savings and family contributions.

Federal work-study programs might be an option for undergraduate, graduate and professional students who are attending school full-time or part-time and who have financial needs. Jobs through federal work-study programs often involve doing work related to your studies or community service work, which makes these jobs a great way to earn money for tuition while also building your resume.

However, you’ll need to make sure your school participates in the federal work-study program by checking with the financial aid office, and you’ll need to both qualify for a work-study job and be able to find a job.

When your school provides information on your financial aid package, you’ll be offered a federal work-study award if you are eligible based on financial need. You can find out a lot more about federal work-study programs by reading our guide.

There are also a number of side hustles you could do while attending school, and with careful budgeting, working during school might make college affordable without loans — especially if the school offers a flexible or monthly payment plan.

Of course, if you’re hoping to pay for the costs of your education by working your way through school, choosing an inexpensive school or a school known for being generous with financial aid will make this a lot easier.

Federal loans

Federal loans are one of the most popular sources of college funding, and often should be the next source of payment for college expenditures after you’ve exhausted your scholarship opportunities, your contributions from savings and are unable to earn additional funds through work.

Federal loans available to undergraduate students are called Direct Loans, or Stafford Loans. There are both subsidized and unsubsidized Direct Loans, but there are maximum limits on how much students can borrow.

When students are eligible for subsidized loans, the government pays interest while the student is in school, as well as when loans are in deferment. For unsubsidized loans, students are responsible for covering interest costs. If students do not pay interest while in school, interest continues to accrue and is capitalized, or added on to the loan balance so students pay interest on the interest.

Federal loans are typically preferable for undergraduate students compared with private loans because federal loans provide advantages not available with private loans. These advantages include lower interest rates than private loans, an easier qualification process and more flexibility in repayment including income-driven repayment plans and public service loan forgiveness programs.

Parents may also take out federal Direct PLUS Loans. Unlike with federal Direct Loans for students, a parent’s credit score is a factor in applying for PLUS loans and parents cannot qualify with an adverse credit history.

To obtain Direct Loans for students or Direct PLUS Loans for parents, students must complete the Federal Application for Student Aid (FAFSA) each year. The FAFSA should be completed in October when it becomes available, as aid can run out.

If students do not receive enough financial aid and don’t have the money to cover the costs of their chosen school, working during school or taking private loans may be the only options to ensure there is enough money to fully pay for college.

Private loans

If students have exhausted other funding options, private student loans can provide additional money to cover college costs. There are downsides to private loans compared with federal loans, including higher costs, less flexibility regarding repayment and the possibility of payments rising if students take variable rate private loans.

Federal student loans Private student loans
Lender Federal government Banks, online lenders, credit unions or other private financial institutions
FAFSA required? Yes No
Cosigner required? No, unless you’re applying for a PLUS loan and have adverse credit. In this case, you’ll need to apply with an endorser. Likely yes. The borrower or cosigner must meet a lender’s requirements for credit and income.
Interest rate type Fixed Fixed or variable
Interest rates (for 2020-21) ● 2.75% for Direct undergraduate loans
● 4.30% for Direct graduate loans
● 5.30% for PLUS loans
Varies by lender. Borrowers with the best credit will get the lowest rates.
Origination fee (for 2020-21) ● 1.057% for Direct unsubsidized and subsidized loans
● 4.228% for Direct PLUS loans
Varies by lender, but many charge no origination fee
Borrowing limits ● $31,000 aggregate loan limit for Direct subsidized and unsubsidized loans for dependent students
● $138,500 for Direct subsidized and unsubsidized loans for graduate students
● Up to the cost of attendance of your school, minus any other financial aid already received, for parent PLUS or grad PLUS loans.
Usually up to the cost of attendance of your school, minus any other financial aid already received
Repayment plans ● Standard plan
● Income-driven repayment plans
● Extended repayment
● Graduated repayment
Terms will vary. You select your term when you borrow.
Grace period Yes, automatic for most borrowers, except for parent PLUS borrowers Usually yes, but check with your specific lender to make sure. Parent borrowers might be expected to start repayment immediately.
Forbearance and deferment options Yes Varies by lender
Eligible for federal forgiveness programs? Yes No
Eligible for Direct loan consolidation Yes No
Eligible for refinancing Yes Yes
Rules for default After 270 days of missed payments Varies by lender
Statute of limitations None Varies by state

Qualifying for a private loan can also be difficult unless students have a cosigner willing to commit to the lender to be held equally responsible for loan repayment. This is because private lenders consider credit scores and the borrower’s income when determining whether to approve a loan and how much to lend. Many students don’t have much income and haven’t had time to build a good credit score, so they often won’t qualify on their own.

There are a number of private lenders, and students should compare private loans carefully to find a loan that works for them if relying on private loans becomes necessary to fund college costs.

Andrew Pentis and Christina Majaski contributed to this report.

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