How To Pay for College: A Comprehensive Guide for Students and Families

College costs are rising for public and private institutions. As of the 2024-25 school year, the average budget for an undergraduate student living on campus at a four-year school is $29,910 at public in-state schools, $49,080 at public out-of-state schools, and $62,990 at private nonprofit institutions, according to the College Board.

Unfortunately, college expenses will continue to go up. The Bureau of Labor Statistics found that prices for tuition and fees rose by 4.7% between February 2020 and February 2023. It's crucial to plan how you will pay for college so these costs don't overwhelm your budget.

Here's what prospective students need to know about paying for college.

Understanding the cost of college

There are several factors that go into the cost of your college education. Some are direct costs, which you pay directly to the college or university, and some are indirect costs, which are other expenses you incur by attending.

Your direct costs generally include the following:

• Tuition: This is the money you pay to attend classes. You may pay a flat tuition rate per semester, or you may pay per credit hour that you take.
• Fees: These are the charges you pay to cover certain services, like lab fees or technology fees. These will vary from one school to another.
• Room and board: If you live on campus and take part in the school meal plan, you will pay for your lodging and meals.

Indirect costs generally include things like textbooks and school supplies, transportation to and from school, and personal items such as dorm furnishings.

It's also important to remember that the sticker price for attendance is not necessarily the same as your net price. That's because the sticker price — the amount the school publishes as the cost of attendance — does not include any financial aid you might receive.

The net price, which is the sticker price minus any grants or scholarships you receive, should be the number that you focus on when comparing costs between schools.

Current private student loan rates

Financial aid options for college

Financial aid is a term used to describe a number of different types of financial assistance. Understanding how each of these types of financial aid works can help you minimize your college costs.

To apply for any federal aid, you'll need to complete the Free Application for Federal Student Aid (FAFSA) each year. You generally need to be a U.S. citizen or eligible noncitizen enrolled in a qualifying educational program to be able to receive aid.

Some of the most common financial aid options include:

Grants

This kind of financial aid typically doesn't have to be repaid. There are several federal grants available to undergraduate students demonstrating financial need, and nearly every state education agency also offers grants to state residents.

One major federal grant is the Pell Grant. The Department of Education has capped the maximum Pell Grant award at $7,395 for the 2024-25 academic year. Other federal grants include Federal Supplemental Educational Opportunity Grants (FSEOG) and Teacher Education Assistance for College and Higher Education (TEACH) Grants.

The FAFSA helps determine your eligibility for grants. For grants with additional eligibility and application requirements, visit the website for each grant to find out what you need to do to apply.

Scholarships

Scholarships can significantly reduce the financial burden of college since these awards also don't have to be repaid. Scholarships are offered by schools, private companies, nonprofit organizations, religious groups, and professional organizations, among others. They can come in various forms and cater to different student needs and backgrounds, including:

• Merit-based scholarships: These types of scholarships are awarded based on academic achievement or accomplishments in athletics, the arts, and other areas.
• Need-based scholarships: Some scholarships are available to students who demonstrate financial need or students who have overcome a unique challenge in their life.
• Demographic-specific scholarships: These scholarships usually require you to be a part of a specific demographic. A few demographic-specific scholarships include Asian Pacific Fund scholarships, the Hispanic Scholarship Fund, and the American Indian College Fund.

To find scholarships that you may be eligible for, contact the financial aid office of your chosen school, ask for help from your high school guidance counselor, or check out Scholarships.com, Fastweb, and the U.S. Department of Labor's free scholarship search tool.

Each scholarship has its own application requirements and process, so make sure you research those requirements and apply on time.

Learn More: How To Get a Scholarship for College

Work-study

Federal work-study jobs are part-time jobs designed to help you earn money for school. Jobs can be on or off campus, and they often focus on civic education or work related to your field of study. You're guaranteed to earn at least the federal minimum wage. However, your total earnings can't exceed your total federal work-study award amount.

Loans

The Department of Education offers several types of federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, and graduate or parent PLUS loans. All federal loans come with important borrower benefits, including access to loan forgiveness and flexible payment plans like income-driven options.

Student loans to pay for college

Borrowing money for higher education is one of the most common methods that students use to help pay for college. There are several types of student loans that borrowers can access, but student loan lawyer Jay S. Fleischman cautions against relying too heavily on loans.

“ Anybody going to college needs to have a really firm understanding of why they're going, what they hope to accomplish, and what their employment prospects look like on the other side,” says Fleischman.

Otherwise, it can be very easy to finish school with student debt that you're not prepared to pay off. “It really should be a cost-benefit analysis,” Fleischman adds. “How much am I going to spend on my education versus how much am I going to make?”

Understanding what kinds of student loans are available and how they work can help students make the best borrowing decisions for themselves.

Federal student loans

There are several types of federal student loans available to student borrowers, including:

• Direct Subsidized Loans: These loans are for undergraduate students with demonstrated financial need, and the government pays interest during school, your grace period, and periods of deferment. First-year undergraduate students may receive no more than $3,500 in subsidized loans, up to an aggregate limit of $23,000 for undergraduate education. These loans have an interest rate of 6.53% for loans disbursed during the 2024-25 school year.
• Direct Unsubsidized Loans: These loans are available to both undergraduate and graduate students. You don't have to demonstrate financial need to be eligible for an unsubsidized loan, but interest accrues on this loan during school, your grace period, and any periods of deferment. First-year undergrads may receive no more than $5,500 in Direct Unsubsidized Loans, with an aggregate limit of $31,000 for undergraduate education. The 2024-25 interest rate is 6.53% for undergraduate borrowers and 8.08% for graduate students.
• Direct PLUS Loans: These loans are available to graduate students and parents of dependent undergraduate students. While PLUS loans do require a credit check, unlike Direct Subsidized and Direct Unsubsidized loans, applicants with adverse credit histories may still qualify with additional requirements. The maximum PLUS loan amount is the school-certified cost of attendance, minus any aid you receive. These loans have a fixed interest rate of 9.08% for PLUS loans disbursed during the 2024-25 academic year.

Federal student loans have some important benefits that private lenders don't offer. To start, payments on federal student loans aren't due until you graduate, leave school, or drop below half-time enrollment.

Federal student loan borrowers may also choose from several repayment options, including income-driven repayment plans, and they have the ability to temporarily postpone payments during difficult financial times. Loan forgiveness is also available to eligible borrowers. Finally, your credit is not a factor for most loans.

See Also: Are Student Loans Compound or Simple Interest?

Private student loans

If you've exhausted your federal student aid options, you may consider applying for a private student loan to cover any gaps in your college funding. But keep in mind that private student loans don't have the benefits that federal loans offer.

Private loans are available to undergraduate, graduate, and professional students, as well as parents helping a child cover school costs. Lenders typically consider your credit score and income to determine your eligibility for the loan and your interest rate. If your income is unreliable or you have a low credit score, you may need to add a cosigner to your application to help you qualify or get an affordable rate.

It's best to compare multiple lenders to find the best loan terms for your unique situation.

Alternative ways to pay for college

Financial aid isn't the only way to pay for your college education. Students and parents can look into these alternatives for college financing:

College savings plans

Investing in a college savings plan can come with certain tax advantages. There are two main types of college savings plans:

• 529 plans: These plans are typically started by adults on behalf of minors, and funds deposited in a 529 plan must be used for qualifying educational expenses. 529 plans come in two forms: prepaid tuition plans or educational savings plans. In a 529 savings plan, money is invested, grows tax-free, and can be withdrawn federal-tax-free to pay for qualifying educational expenses. Some states also allow a tax deduction for 529 plan contributions. Prepaid tuition plans, on the other hand, typically allow you to prepay future tuition at current prices.
• Coverdell education savings accounts: These are custodial savings accounts set up by adults to pay qualifying educational expenses for minors. Beneficiaries can make tax-free withdrawals to cover eligible costs.

If parents, grandparents, or other eligible loved ones start investing in these plans early on, the plans can grow over time and cover a good portion of college costs.

Employer assistance

Many employers offer educational assistance programs to their employees and the children of their employees. These programs can help students pay for tuition, books, equipment, supplies, and other qualifying expenses for either undergraduate or graduate education.

Check with your employer to see if there are any educational assistance benefits available through your workplace.

Part-time work and savings

College students can help pay for their education by working part-time while attending school, by saving the money they earn in high school, or by working full-time hours over the summer.

If you qualify for the federal work-study program, your work-study job can be part of this strategy. Just remember that your work-study earnings are limited by your award amount.

Tips for minimizing college expenses

Though college costs continue to rise, students and parents can use these strategies to help minimize their costs:

• Fulfill your prerequisites at community college: Community colleges are significantly less expensive than traditional 4-year colleges, and the credits you earn at your local community college will transfer to virtually any school. You can lower your total cost of attendance by fulfilling your basic course requirements at community college for a year or two before transferring to the school you want to graduate from.
• Commute from home: Living at home will reduce your college expenses since you won't need to cover the cost of room and board.
• Take the maximum credits: If your school charges a flat rate for tuition, rather than charging by the credit hour, taking the maximum credits per semester will reduce the amount you pay and the amount of time you need to graduate.

Reduce discretionary spending: Making do with the minimum you need while you're in college can help you save a significant amount of money.