In today’s economy, the cost of nearly everything is on the rise, including higher education. On average, individuals in the 2023 to ’24 school year spent $28,409 for college, an amount that may leave students and their parents searching for financial aid, according to Investopedia.com. For many, financial aid is a useful tool to cope with higher education costs. Other options include utilizing savings and taking out student loans. In this blog, we will discuss ways to pay for college. Raising awareness about financial aid and the other options available will give you the knowledge to choose the right path for your college journey and financial wellness.
How Financial Aid Works
Financial aid programs help students by providing grants, scholarships, work-study jobs and loans. Students can use financial aid to pay for tuition, books and other supplies, transportation, housing and food. Financial aid comes from a variety of sources, including federal and state agencies, universities and colleges, high schools, community organizations, foundations, corporations and more.
The best news is that financial aid starts in one place: by completing the Free Application for Federal Student Aid (FAFSA) for each upcoming year of college. Once you complete and submit the application, the colleges and universities you applied at will offer a financial aid package as part of their acceptance letters. You can learn more about receiving financial aid at studentaid.gov.
The type and amount of financial aid offered are based on your financial situation, academic standing and other guidelines set by the school. This makes it important for future college students to research the tuition and financial aid programs at their desired colleges ahead of time so they know what they will likely receive if accepted. To help you navigate financial aid, talk with an academic counselor to take advantage of all the opportunities available.
Types of Financial Aid
There are three main types of financial aid.
- Grants are monetary awards that do not need to be repaid if you complete your degree. Considered “free money,” grants can help pay for tuition, books or any other part of higher education costs. Be sure to understand the conditions of any grant you receive. The last thing you want to do is forfeit the grant’s terms and be required to repay the money.
- Scholarships are monetary awards given to students for many reasons. For example, students can earn scholarships for their academic achievements, declared major area of study, community involvement, military affiliation, ethnicity, gender and much more. Scholarships are offered by universities, private citizens, nonprofit organizations, government groups and others. Scholarships do not need to be repaid if you meet the award’s terms. Check with your academic counselor or go online to research scholarships in your areas of interest.
- Work-study programs are funded through the federal government and provide college students with part-time work on or off campus while in school. This type of financial aid is available based on students’ financial needs. Once hired, you will be paid at least the federal minimum wage.
Your financial aid will vary based on your unique situation. The best strategy is to research your desired schools, determine how much money you will need to attend, and then pursue the financial aid that helps cover the costs. Remember that there are strict deadlines with the FAFSA and that you will need to reapply for each year you are in school. Check the FAFSA website often to stay informed of deadlines and any changes in the program.
Using Student Loans
Along with grants, scholarships and work-study offers, financial aid packages may include loans for students and parents, which are becoming unavoidable as higher education costs continue to go up. During the 2024 to ’25 period, tuition for in-state universities increased by an average of 2.5% compared to the previous year, while private, nonprofit college tuition increased by an average of 3.9%, according to CollegeBoard’s higher education trends.
There are two types of student loans available for higher education: federal and private student loans. Federal loans are government loans that come with benefits such as fixed interest rates, income-based repayment plans and flexible repayment plans. Depending on the loan, you may be required to start repayment one month after graduation or you may be able to defer repayment for six months after graduation.
There are four types of federal loans available:
- Direct Subsidized Loans are for eligible undergraduate students with some financial or income restrictions. As a subsidized loan, the loan does not accrue interest while the student is in school.
- Direct Unsubsidized Loans are for eligible graduate or undergraduate students who are not income restricted but still need a loan. The interest rate accrues while the student is in school.
- Direct PLUS Loans are for graduate or professional students and parents of dependent undergraduate students. They are available without income restrictions or needs. A credit check is required.
- Direct Consolidation Loans let students combine all eligible federal student loans into a single loan with a single monthly payment.
Keep in mind that federal loan eligibility varies by individual. Although some students may not qualify for grants, scholarships or work-study programs, you will still need to submit a FAFSA to see what federal loans are available to you.
Along with federal loans, there are private student loans. These loans may be offered at credit unions, banks and other lending organizations. Private student loans programs vary in terms of repayment schedules, interest rates and credit score eligibility, so shop around for the best rates and terms that fit your budget. With private student loans, you may be required to start paying the loan back as soon as you borrow.
Saving Money for College
One way to pay for college without financial aid is to start saving for it while your future student is still a young child. The reason starting early works is because of compound interest and time. For example, as you regularly save for college over the next 18 years, your savings account balance earns interest and then your interest starts earning interest. Over time, this snowball effect can significantly increase the amount you save for college.
For starters, parents could open a savings or money market account and deposit money each month. These types of accounts are convenient ways to save because the funds are readily available for withdrawal in case of an emergency. You will earn dividends with a money market account and sometimes with a savings account. If you want to earn more interest on your money, open a certificate at a credit union.
A share certificate, known as a certificate of deposit at banks, lets you earn higher interest on a set amount of funds that are locked in during the certificate’s term. During this time, you are unable to withdraw funds without incurring a penalty. Certificates are a good option for those who want to get the highest return on their savings without risk.
Another great savings product is the 529 College Savings Plan. This plan lets your funds become tax free when used to pay for qualified higher education expenses. Depending on the type of 529 account, your funds can continue to grow over time and remain tax free if used for higher education. Learn how much you will need to save for college from Investopedia.com.
How Can TCU Help?
Your financial wellness is important at Travis Credit Union. We are focused on providing you with the knowledge and skills to make the best money decisions for college and throughout your life. We offer products, such as money market accounts and certificates, that help you save better, as well as Sallie Mae Student Loans and personal loans so you can achieve your financial goals. Get started today at Traviscu.org.