How to Pay for College (2024)

FAQs

What is the best method to pay for college? ›

Financial aid can come from federal and state governments, colleges, and private organizations. Some help comes in the form of loans, which have to be paid back. Grants, scholarships and work-study programs do not have to be repaid. Broadly, there are two types of financial aid: need-based and merit.

Let's say you take out a $100,000 loan with a 6% interest rate to cover tuition plus room and board for a four-year university. With a 10-year repayment plan, you'd be looking at over $33,225 in interest. Yikes! By paying cash, you eliminate interest charges.

According to the oft-cited Sallie Mae study “How America Pays for College,” 77% of American families used parent income and savings to pay for some of their kid's college expenses. Another 18% of parents use borrowed funds to pay for some portion of their child's higher education.

Continue the search for grants and scholarships

The College Ave survey found that the No. 1 way families pay for college is through merit aid grants and scholarships.

While it is possible for student financial aid to cover full tuition, in practice it will fall short. For most students, there will not be enough financial aid to cover the full cost of tuition, unless the parents borrow a Federal Parent PLUS loan.

There is no income cut-off to qualify for federal student aid. Many factors—such as the size of your family and your year in school—are considered.

In the 2023 Sallie Mae and Ipsos survey: 72% of families surveyed reported using parental income and savings to pay for college. 58% said they used a parent's current income to pay for college. 30% relied on funds saved in a college savings account, like a 529 plan, to pay for school.

What is the best way to borrow money for college? ›

For most students and families who decide to borrow, federal student loans are the best option. Repayment on federal student loans doesn't start until after you leave school, and with fixed interest rates and payment plans, monthly payments can be manageable.

Paying off student loans early can benefit you financially, but it should typically come second to building your emergency fund and retirement savings. People with private student loans or without other debt tend to benefit more from paying off student loans early.

Scholarships and Grants – Free money that does not have to be paid back. Financial Aid – Distributed by the government and/or colleges and comes in the form of grants, work study, or student loans. Private Student Loans – Money that you have to pay back after graduation.

Parents have several options to help their child pay for college, including setting up a savings account or cosigning a private student loan.

Say you're planning for a child who's 4 years old today. Your college savings goal should be $60,400 for a public, in-state college; $95,600 for a public, out-of-state college; and $118,900 for a private college. If these numbers seem daunting, don't worry.

When paying for college, some forms of financial aid are better than others. Money that you don't have to pay back should take priority — like scholarships, grants and fellowships — followed by income from work-study programs, or even employer assistance if you can work while enrolled.

A good college budget prioritizes needs and savings over wants. A good template to follow when budgeting is the 50-30-20 ratio—50% of your income covers needs, 30% goes toward wants and 20% is for savings. This format can guide you in creating your next spending plan.

Grants and scholarships are a type of financial aid that doesn't have to be repaid. Grants are often need-based, while scholarships are usually merit-based. Start by researching available scholarships and grants and applying for as many as you can.