6.2 Financing Your Education¹

Paying for college is an undeniable component of the educational process. Understanding the factors that combine to create the overall cost of a college education can help a student make decisions about how to achieve the goal of obtaining a college degree.

Today’s colleges are in a competitive market for students. Thinking about the services you as a student need or want from a college environment can help define what is personally important and what you are willing to pay for.

• What is college worth to you?
• How much is the degree or certificate you want to earn going to cost?
• What costs are included in tuition?
• What costs are not included in tuition?
• How much money can you afford to spend on college?
• Where can you get financing for college if you need help paying for it?
• What is the current interest rate on student loans?
• Are interest rates all the same?
• How much money do you think you could afford on a monthly basis to pay back a loan related to financing college?

There are many costs to consider when deciding the right college or program for you. The most common cost people consider is tuition. This is the price you pay for taking college classes. Tuition differs for in-state students and out of state students. If you choose to attend a college in the state where you or your family live, you will usually pay a lower rate than someone who moves to a different state or country to attend the school. Tuition is also impacted by whether the school is public, private, for-profit, or non-profit.

Academic programs may have additional fees beyond tuition costs. For example, a student majoring in culinary arts will need specialized tools to participate in that program. Services the college provides to students can have associated fees. For example, a recreation center or transportation system may have a basic fee that all students must pay whether they use the service or not. Students cannot opt out of required fees. It is important for students to examine a college’s fee structure and maximize their use of those services they have already paid for.

The cost of books and the supplies students will need to complete a program can vary greatly, even from semester to semester. Books and supplies can add $1000 or more to the annual tuition cost. This is an important factor that is easily overlooked by students. Finding classes that offer low cost book options, open educational resources (OER), or zero textbook cost (ZTC) sections can help reduce the overall cost of college. Students can also check online or with their bookstore for used books or rental options, and/or use reserve books in the library, if available. Sometimes finding a required textbook from Amazon or Chegg or other online sources will be less expensive than purchasing a new textbook from the college bookstore.

Where you live while attending college is a major factor in the overall cost of attendance. Living with family may be less expensive for some, but many times is not an option for students. It is important to examine all your housing options and pick the one that best suits you. On-campus living can be a great option. You will usually be able to live very close to campus, have a furnished room, and meal options available to you. Choosing to live off campus may give you more options to choose from with price, amenities, and location. Before finalizing your living arrangements, consider all the costs associated with each option: rent, utilities, food, fees (like parking), and conveniences.

The cost of getting to and from your college can vary significantly based on how close a student lives to the college campus and the transportation method selected. Some colleges may have a transportation fee as part of the student fees that might provide mass transit options for getting to school. Colleges may also have parking fees for those students who drive to the campus. Seasonal weather conditions are another factor in transportation choices. As a student estimating the cost of college, remember to think about the entire school year. An apartment near campus may have a higher rent than living 10+ miles away, but it may save you time and money to not have to drive and park daily.

Students tend to underestimate how much money will be needed for personal expenses. For example, many students today cannot survive without smartphones, computers, and data plans. You will also need basic health care and hygiene products, clothing, and funds for occasional social events and family commitments. You may also spend money here and there on conveniences like food delivery or online shopping. These amounts add up fast, especially if you are not cognizant of what you are spending. Track your spending for a few weeks to have an accurate estimate of what you spend in this category.

Choosing to spend time and money going to college has an opportunity cost. If you are spending time and money on your education, you will not be spending that same time and money elsewhere. One example of this relationship is employment. Attending classes and doing homework may mean you can’t work at a job as much as you want to. It may also mean you will have less time to spend with friends and family. Pursuing a college degree comes with many delayed rewards – graduating, working in a field you enjoy, and earning more money – and those rewards are not guaranteed. It is important to consider this when choosing your next steps in life and if going to college right now is the best option for you to reach your goals.

Financial Aid Basics

Most students will need some form of financial aid to help pay for college. Before accepting an offer of assistance, it is important for a student to understand what each possible offer means and what the student’s responsibility will be after accepting the offer. The Office of US Department of Education offers financial assistance to students in the forms of grants, loans, and work-study programs. Filling out the FAFSA application is the first start towards receiving financial aid for college. Your school will send you an award letter a few months after the FAFSA deadline that explains what types of funding you are eligible for.

Grants are seen as the best type of funding as it is money you receive that you do not need to repay. Grants are usually based on your financial need as determined on the FAFSA, so you do not need to fill out applications like you would with a scholarship. Work Study funding can also be really helpful to students. By opting into work study funding, you make yourself eligible for many on campus jobs. On-campus jobs are more convenient for students as your employer is required to work around your class schedule and you cannot work more than part-time hours. Your wages are also not taxed as much as they would be at an off-campus job.

Scholarships are also funds that the student does not need to pay back. Thinking about applying for scholarships can seem like an overwhelming prospect, and students have many excuses for not applying. There are so many scholarships available for college that knowing where to start is the first obstacle to the process. Scholarships are not limited to people entering college straight from high school. In fact, every college has a scholarships website where students can apply for scholarships up until their senior year.

Scholarships are offered to students who meet a specific requirement established by the sponsor, who may be an individual or an organization. Scholarships can be offered through local, state, or national sponsors. Each scholarship will have its own requirements based on the purpose of the scholarship. Scholarships are a good way to help pay for college without increasing student debt. Students may apply for multiple scholarships. Receiving a scholarship will affect a student’s overall financial aid award because all the student aid added together cannot be more than the cost of attending college. However, it is important to realize that scholarships are gifts and do not have to be repaid, so trying to include a scholarship in your overall financial aid package is a good idea. It is always worth it to apply for scholarships, so make sure you are doing so regularly!

You may still need funding once you have accepted work study, grants, and scholarships. That is where student loans come in. It is crucial to understand the terms of your loans before taking them out. Loans offered through the Federal government will be subsidized or unsubsidized loans. The key difference between unsubsidized and subsidized loans is the amount of debt a student will leave college owing. Unsubsidized loans charge students interest while they are attending college, so the interest is growing on the loan during that time. A student might think they are borrowing $4,000.00, but unsubsidized loans add interest to the amount borrowed which adds up over time. Subsidized loans do not add interest for the student until after they have left school, so $4000.00 really is $4,000.00, no extras added.

Understanding interest rates and how they impact student loans is essential. Many students shy away from doing the math to understand what their responsibility will be in repaying a loan. It is also essential that students understand the difference between a subsidized and an unsubsidized loan. Your financial aid award letter from your university will specify if you qualify for subsidized or unsubsidized loans and the maximum amount you can borrow for each.

Occasionally, students will need to borrow more money than the FAFSA can offer them and choose to take out a private student loan from a bank. These loans should be used as a last resort. Private student loans are not regulated the same way federal student loans are, meaning they can have higher interest rates and stricter timelines for repayment. If you must take out a private student loan, it is in your best interest to take out a small amount and prioritize paying off the loan as quickly as you can.

Another important thing to remember when borrowing money for college is that if you add the cost of books and supplies or other needs onto the loan you have taken on for tuition, and you have unsubsidized loans, that extra money also grows over time with interest. Be watchful when adding even small amounts of money to your loan balances. It can add up quickly!

Video: Voices of Debt: The Student Loan Crisis – Don’t Major in Debt

Video: Student Loan Crisis | Natalia Abrams | TEDxHartford

Loan Calculator

Remember, you are a consumer when it comes to taking on loans for college. Not thinking about what the debt means after college only compounds the issues. It is important to think about how much you could afford to pay monthly on a student loan once you have completed college. It’s easy to do the math on loan costs. The Smart Student’s Guide to Financial Aid has a free loan calculator that will do the work for you. All you have to do is plug in the numbers. The loan calculator will also give you an estimate of what your annual salary will need to be able to repay the loan. Of course, the loan calculator will not know your other financial commitments, so be sure to look at the monthly payment and decide if you afford that additional expense.

It is also important to realize that even if you don’t finish college, you will have to repay a loan taken out for college. According to an article titled The Feds Don’t Care If You Dropped Out of College. They Want Their Money, students who dropped out of college and ultimately didn’t obtain a degree or certificate, generally don’t earn higher wages after leaving school. Statistics show that students who start college but don’t finish struggle with student debt.

The US government backs loans that are taken out through FAFSA/Federal Student Aid. Repayment is expected. The government has the authority to garnish wages and withhold tax returns as part of repayment of loans that are not paid. Government-backed debt cannot be forgiven in bankruptcy, except under rare circumstances. There are government programs in place to help with loan repayment like Public Service Loan Forgiveness or Teacher Loan Forgiveness. These programs require a graduate to work in a specific area or public sector job for an extended period of time while making their loan payments. Once that length of time has passed, some or all of their federal loans will be forgiven. It is worth it to look into programs like this that you may be eligible to participate in after you graduate.

It’s understandable to be concerned about student loan debt and want to borrow as little money is possible, if any at all. This aversion to debt can help you make healthy financial decisions but  also influence you to prioritize working over attending class and keeping up with assignments. It’s important to strike a balance between work and school to make sure you are succeeding in both without being overwhelmingly stressed.

Consider both long and short term pros and cons of working while attending college and taking on student loan debt. Working and being a student simultaneously can be done, but it’s necessary to figure out how much of your time per week you are willing to devote to each. Students regularly withdraw from courses or repeat courses because their schedules were too hectic and they needed to change course. The costs of paying for courses you do not complete or taking a course multiple times can be thousands of extra dollars spent. If you are noticing this pattern in your own college experience, reflect on why and what changes you can make.

Students often want to do it all: work full time to earn money, take classes full time, have an active social life, and maintain their physical and mental health, and do it all perfectly. This is an impossible standard to meet. Working fewer hours and taking on a little more debt may be the best course of action for you to succeed in courses and graduate in a timely manner. Taking fewer classes each semester so you can financially support yourself and your family can be the path that works for you. The cost of going to college seems to be constantly increasing. Understanding the opportunity cost both now and in the future needs to be an important part of a student’s decision process when selecting a college and a major. Do the math! There are plenty of resources to help you. Follow your dreams, but be informed.

Citations

1. Lamoreaux, Alise. A Different Road to College. OER Commons. https://openoregon.pressbooks.pub/collegetransition/chapter/chapter-8/. CC BY 4.0.