4 Ways to Fund Your Education

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• College costs have been rising in recent years; fortunately, there are many ways to pay for it.
• Scholarships and grants are two options that do not need to be repaid.
• Federal student loans should be your top choice for borrowing, with private loans as a last resort.

Attending college is no easy, nor affordable, feat. Tuitions have soared in recent years, averaging from $9,700 to almost $40,000, depending on the type of school you attend, according to the National Center for Education Statistics.

A college education is something few Americans can afford on income alone. Fortunately, that’s not the only option. 

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Are you or your child planning to attend college soon, or even years down the line? Planning ahead can help you better manage the costs of that education. Here are four avenues to explore:

1. Scholarships and grants

Financial aid is one way you can pay for some or all of your college education costs. This aid may be free — meaning you won’t need to pay it back — or it may require repayment, often with interest.

Scholarships are among the free options. These are financial awards given to students based on need, merit, or achievement, and they do not need to be repaid. They can come from the school you attend, your (or your parent’s) employer, community groups, professional organizations, and even the government. 

To apply for federal scholarships — or any other federal student aid, for that matter — you’ll need to fill out the Free Application for Federal Student Aid (FAFSA). You can also find potential scholarships by talking with your high school guidance counselor or your college’s financial aid office or browsing sites like FastWeb. 

“I know it might sound a bit wild, but I suggest that high schoolers should aim to apply for a minimum of 50 scholarships,” says Robert Farrington, founder of The College Investor. “This holds true even if you’re thinking about going part-time for your studies.”

In addition to scholarships, there are grants for college, which also do not need to be repaid. The federal Pell Grant, for example, offers up to $7,395 to students who have “exceptional financial need.” Again, you can apply for these and other federal grants using the FAFSA. Your state and college may also have grants and scholarships you can apply for, so be sure to check with your state’s education department and your school’s financial aid office, too.

Finally, explore what other options your college and state offer. Many colleges offer payment plans that can help you spread the costs of college out over time. In some states, you may be able to pay tuition years ahead of time to save cash. These options can both help you better deal with the costs of college.

“Many states allow you to pre-pay some tuition, essentially freezing it at today’s costs versus what it will cost in the future,” says Thomas Mullen, a certified financial planner and partner at Breakwater Capital Group. 

2. Student loans

Once you’ve exhausted all your free aid, you can consider student loans to bridge the gap.

“The golden rule is to grab those freebies like grants and scholarships first before you even consider anything else,” Farrington says.

Types of student loans (federal vs. private)

There are two types of student loans you can pursue if needed: Federal student loans and private student loans.

When looking at federal vs. private student loans, your first choice should always be federal student loans, which are offered through the US Department of Education. These have lower interest rates and require no credit check (private loans base your rate on your credit). Federal loans also come with more repayment and forgiveness options than most private student loans.

To apply for federal student loans, you’ll need to file a FAFSA every year. Once your application is processed, you’ll get your loan offers and can evaluate if additional aid is needed beyond that. If it is, private student loans—which are offered through private companies and lenders — may be an option. But as Farrington puts it, “Private loans are the last resort.”

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Student loan repayment options

Federal student loans come with several repayment options. The most common are:

• Fixed monthly payments over a period of 10 years
• Graduated payments that start low and then increase slowly over time as your earnings increase
• If you qualify, an extended repayment plan that gives you 25 years to pay off your loans 

There are also income-driven repayment plans that base your payments off the amount of money you earn. These require you to pay anywhere from 10% to 20% of your discretionary income.

Student loan forgiveness programs

Another perk of federal student loans is that some of them may be forgivable. Under the Public Service Loan Forgiveness program, certain borrowers can have their student loan balances wiped clean.

To qualify, you must be a federal, state, local, or tribal government employee — or work for an eligible non-profit organization. You also must have federal Direct Loans and have made at least 120 monthly payments toward your balance. If you think you might be eligible, fill out the PSLF form at StudentAid.gov.

3. Part-time jobs and work-study

You can also contribute to your college costs by working while in school. This might mean getting a part-time job on-campus — as an aide, a resident assistant, or some other position — or taking a job off-campus at a local business, restaurant, or retail store. 

Most colleges have human resources departments that can help pair you with an on-campus job. This might be the best course of action if you live on-site and do not have access to transportation. 

If you have a car or bus pass, though, off-campus employment may pay more. You can look to local job boards or websites like Indeed or Monster for opportunities, or just stop by local businesses and restaurants and ask if they’re hiring. 

You can also consider a work-study program, which places you in a job with the goal of earning money for your education. 

“Work-study programs are a common choice on campuses,” Farrington says. “They provide a flexible schedule and are tied to your financial aid. While the pay is usually minimum wage, the hours are adaptable to your class schedule.”

There are federal work-study programs, or your individual school may have one.  To apply for federal work-study, you’ll need to fill out the FAFSA. 

4. Saving for college

If you’re still a few years from attending college, start saving for your education costs now. You might consider opening a 529 plan — a type of investment account designed to help you grow the money you set aside for college. These are state-based and tied to a specific beneficiary — the student you’re saving for, and as you deposit money, the funds are invested into a professionally managed portfolio. 

Another popular option is the Coverdell Education Savings Account (ESA). In both cases, the accounts can only be used to pay for qualifying education expenses.

Whichever you choose, “Start early,” Mullen says. “Education costs are high and as much as you can allow the market to help you grow the investment, the better.”

Having a good household budget can help you save more, and automating your deposits — ideally directly from your paycheck — is also smart, Mullen says, as this helps you “avoid the temptation to spend before you save.”

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