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How Do You Determine Your Willingness To Pay
The right amount to pay out-of-pocket for college will depend on what youre ultimately comfortable with. Some questions to consider before deciding what youre okay paying for school, both now and in the future include:
- Will this school offer you unparalleled networking/professional opportunities, or can you get similar opportunities somewhere less expensive?
- Does this school offer an especially strong program in a field I want to pursue?
- How much do you anticipate earning in the 5-10 years after you graduate? Based on your career path, what will you be able to afford in terms of monthly student loan payments?
- Are there ways to cut down personal costs/expenses to lower your cost of attendance? What sacrifices are you willing to make, and what sacrifices are out of the question?
- Can you get a student job to mitigate some of your costs? Would getting a student job negatively impact your studies?
- Last, but not least: how does this amount of debt or expense make you feel? If you anticipate burdened or overwhelmed to the extent that your quality of life is negatively affected, is the expense worth it?
Only you know the answers to these questions. I encourage you to be thoughtful and honest with yourself – the costs and benefits of attending a particular school are long-lasting and far-reaching. Paying for college is an investment in yourself and in your future, but you want the investment to be premeditated and purposeful.
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, youll need to factor in this added cost when deciding if you should make monthly payments for college.
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Bonus Tips For Saving Money On College Applications
It can be costly to apply to colleges and universities. If you are a low-income student, ask schools about application waivers. The SAT and ACT also offer fee waivers. Schools that accept the Cappex Application and Greenlight Scholars Application agreed to waive application fees for all applicants.
Start Saving For The Child In Your Life
How much to save for college is highly dependent on your personal situation.
Some people may have enough discretionary income that they can simply make automatic deposits into a college savings account from each paycheck.
Others will need to be more strategic and set aside money when itâs available.
A custodial account like a UGMA is a great option to use to set aside money for the child in your life because of the flexibility it offers.
A student may face many costs after high school that arenât qualified education expenses, and a 529 plan or ESA is limited in terms of what they can spend the money on.
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Apply For Financial Aid
Of all the college-funding methods discussed is this guide, the first one were discussing is perhaps the most sure-fire. Its federally mandated financial aid. The reason that it’s perhaps the best way to pay for college is that its virtually guaranteed if you qualify, and many families do. Plus, applying isnt difficult and those who qualify often go on to achieve their collegiate dreams. There is a strong connection between applying for financial aid, enrolling and ultimately earning a bachelors degree. But millions of families who would qualify for financial aid never file the documents.
There are two main types of financial aid from federal institutions. The first is the Free Application for Federal Student Aid : a form that determines whether students qualify for a wide range of financial aid. Based on a students individual or family income, FAFSA can automatically qualify college applicants for a host of loans and grants, including Stafford Loans, PLUS Loans, Federal Pell Grants and other need-based grants. FAFSA is also the benchmark used by most colleges to distribute their own need-based scholarship packages.
Parents can file the FAFSA starting October 1 of each year. Its important to file early to capture any money that students qualify for, especially for low-income students. If you dont start early, you might miss the ability to get the Federal Supplemental Education Opportunity Grant , which can run out on some campuses.
Choose An Affordable School
Paying for college will be exponentially easier if you choose a school thats reasonably priced for you. To avoid straining your bank account, consider starting at a community college or technical school.
If you opt for a traditional four-year university, look for one that is generous with aid. Focus on the net price of each school or the cost to you after grants and scholarships. Use each schools net price calculator to estimate the amount youll have to pay out of pocket or borrow.
Just because one schools sticker price is lower doesnt mean it will be more affordable for you, says Phil Trout, a college counselor at Minnetonka High School in Minnetonka, Minnesota, and former president of the National Association for College Admission Counseling. For example, if a $28,000-a-year school doesnt offer you any aid, and a $60,000-a-year college offers you $40,000 in aid, the school with the higher sticker price is actually more affordable for you.
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Making Sure You Can Repay
One guide to how much to borrow is to look at how much the student will be earning right after college. The benchmark we use: you shouldnt borrow more than your estimated starting salary during your first year out of college. This is a good rule of thumb to ensure that you have enough income to comfortably make your student loan payments over a typical ten-year repayment term. So, if your student anticipates that theyll earn $40,000 in their first entry- level job after graduation, they shouldnt take out more than $40,000 in total student loans.
You can research potential salaries on sites like College Scorecard, Edmit, Federal Student Aids Career Search tool, Payscale, or through the college career office. You can also look at monthly payments and income numbers and aim for 10% of your students monthly income to go towards loan repayment .
We encourage parents to look at your own goals and life plans and assess how contributing to the education of all of your children will affect your lifestyle and future retirement. When you apply for student loans youll be approved based on family income, not on what you can safely afford. Use a loan calculator to see how much youll need to pay monthly for different loan amounts. If you cant afford to make the payment now, you more than likely wont be able to afford it when your student finishes college.
Apply For Scholarships And Grants
There are a variety of scholarships available. Some are merit-based, so you must have good grades or fulfill service requirements to qualify. But others are based on your situation, your location, or the school you’re attending.
Grants are often needs-basedyour income and savings are insufficient for you to manage this on your own, or some other special situation applies to you. The College Grants Database can help you get started and guide your search.
It can be worth it to apply each year because available scholarships can depend on your college year. Grants or scholarships are often available for participating in things like student teaching, internships, or senior projects as well.
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How Much Can You Expect Kids To Pay If At All Do You Expect Them To Work During College
This is a question of practicality as well as values. The reality for a lot of parents is that they wont be able to pay the full price of college tuition. But even if they can financially cover all of college, some parents still ask their college-goer to pay for some of the cost. That can allow kids to take some ownership of their education.
Whatever the reasoning may be for you, think about whether or not youd feel comfortable having your kid contribute some or all of their college expenses.
If you would, how much might you expect them to pay, given your own contribution? How do you feel about asking them to work during college? Is that something they think they can do? If it isnt, how else would they plan to cover their portion of the costs?
If you all do decide that your kid will contribute, spend some time thinking through some of the common ways people pay for college.
Choosing A Cheaper College
One of the best ways of cutting college costs is to enroll at a less expensive college. Students should apply to a mix of several colleges based on academic fit and financial fit. Use the colleges net price calculator to get a personalized estimate of the net price, to evaluate the colleges affordability.
The least expensive options generally include in-state public colleges, colleges that offer no loans financial aid policies and free tuition colleges. A private college is generally the most expensive option.
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Take Out Federal Student Loans
If youve exhausted all of your other options for getting money to pay for college, consider borrowing federal student loans.
Federal loans are relatively inexpensive, especially for undergraduate students. If youre an undergrad with financial need, you may qualify for subsidized loans, where the government pays the loans interest while youre in school and during future deferment periods.
To apply for federal loans, all you need to do is fill out the FAFSA. For most loans, theres no credit check, and youll get the same interest rate as everyone else who qualifies for the program. When you receive your financial aid award letter, you can decide how much you want to borrow based on what youve been offered.
Federal student loans are typically the first choice for students who need to borrow money for college, since they come with benefits that private student loans cant offer. For instance, they have extensive deferment and forbearance options, plus opportunities to have some of your balance forgiven through income-driven repayment plans or Public Service Loan Forgiveness.
How Much Should You Pay For College Out
How much is too much to pay in cash and loans?
So we’ve gone through strategies for minimizing costs, determining need, and calculating likely aid. What we haven’t covered yet is perhaps the most important question you should ask yourself before committing to a particular school: how much should you pay, both in cash up front and in loans after graduation, for your education? If you have the opportunity to attend one of your target schools or even reach schools, but the financial aid package isnt as great as you expected, what do you do? Is it worth it to pay more than you can afford to attend that college?
I can’t give you a clear answer to these questions, but I can give you some information that will help you figure them out for yourself:
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The Order Of Operations When Saving For College
Every family has different goals for their children regarding a college education. We all have our own specific situations and challenges that we face.
The acronym Y.E.S. can help you figure out how to prioritize costs that are specific to your situation.
Y stands for âYou.â Before you start saving for the college education of a child in your life, itâs important to get your own financial priorities in order first.
This means making sure that you can pay for your mortgage and other debts, monthly bills, and other basic necessities such as food and clothes.
E stands for âEducation Savings Account.â This is a dedicated college fund, like a 529 plan or Coverdell ESA, that youâll contribute extra money to once your basic finances are covered.
S stands for âSavings.â The child in your life is likely going to have expenses that donât qualify as an educational expense. This includes things like a car to drive to school or new clothes as they grow.
Depending on where you save your money, the child in your life can even use it to go on a trip after high school or start a business.
This is the next step if youâre able to regularly pay all of your personal expenses and contribute to a college fund already. These savings are normally kept in a custodial account, like an UGMA account.
Keeping this money in a custodial account allows the child to use it for non-education-related expenses without paying a penalty.
Apply For Private Student Loans
Private student loans are another way to cover the cost of college. However, theyre generally considered to be the last resort option, even compared to federal student loans. Private loans typically require a credit check to get approved, which means that it can be tough to qualify as a college student with little or no credit history.
Even if you get approved, your interest rate is based on your creditworthiness, so your loans could be expensive.
With that said, most lenders allow co-signers, which can help you qualify and get a low interest rate. However, this also means the loans show up on the co-signers credit report, which could make it difficult for them to get approved for credit in the future.
Even so, if youve exhausted your allotment of federal student loans, which are capped on an annual and aggregate basis, private student loans can be a much better option than higher-interest options like credit cards and personal loans.
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How Much Student Loan Debt Is Too Much
Now is also the time to set some targets for how much youre comfortable taking in loansas a family. Student debt is actually family debt, especially if youll be co-signing private loans or taking parent loans. The answer to how much student loan debt you and your student can take on, and how much comes from other sources of financing, will be different for every family. Different families will have different risk tolerances based on their financial situation or the students goals and preferences.
Where Does College Fit In Your List Of Priorities
When it comes to budgeting, the reality for most of us is that we wont be able to afford all the things we want and still have enough for the things we need. That means well need to prioritize so that were spending, saving, and giving towards the things we value.
First, think about what other kinds of financial goals youre working on. Do you have a sense of how they rank or how long they might take to complete? Where do you feel college sits on that list?
This might sound like a strange thing to consider, but heres an example to highlight why it makes sense. If the most important goal youre working on is saving up for a down payment on a home because you know that will provide your family with stability, then you might choose to push other things, like saving for college, further down the list so that you can accomplish that goal.
So, its clear that understanding how your priorities rank is important. When you know where things fall, then you can communicate that reality to your kids, and ultimately, make a budget that makes sense given those priorities.
But, not only that, it allows you to have a real conversation with your kids about expectations around what you can reasonably provide for them.
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From Your Point Of View What Are Some Key Points About Paying For College That Young People Tend To Miss Or Not Fully Understand
I think the most important thing when it comes to paying for college is to start the process early. I told you how my 529 account was opened when I was 10 by my parents, and how I planned out scholarship applications. I think that element of planning and preparation is the most important thing to understand when it comes to paying for your college because if you do your research and understand how much you’re going to have to pay, you’ll be able to prepare yourself for it. Not just financially, but also mentally.
If you don’t and you wait until the last minute, you’re going to be scrambling to apply for FAFSA, maybe find scholarship money, or maybe job to try and cover some of those extra costs.