As the cost of higher education continues to rise, it’s no surprise the numbers can seem daunting as students and their families figure out how to pay the costs. In general, tuition and fees at both public and private institutions have increased significantly in recent years, often outpacing inflation and wage growth.
The average cost of attending a four-year public university, including tuition, fees, and room and board has more than doubled since the early 2000s. For private institutions, the increase is even steeper. This has made it nearly impossible for many families to cover college expenses without assistance. According to Educationdata.org, about 87% of first-time, first-year college undergraduate students receive financial aid in some form, and nearly 40% of students each borrow an average of $7,487 annually to pay for school.
Navigating the rising costs of college can feel overwhelming. However, with careful planning and strategic use of financial aid, you can fit higher education into your budget or family finances. Here are some top tips to help you maximize your resources and ease the financial burden of higher education:
- Complete the FAFSA early: The Free Application for Federal Student Aid (FAFSA) is your gateway to government and university aid. Submit it as soon as possible.
- Know your aid options: Grants, scholarships, loans and work-study programs each serve different purposes.
- Research scholarships year-round: With nearly $100 million in scholarships going unclaimed annually, consistent effort in applying for aid can pay off.
- Understand loan terms: Carefully review the types and terms of loans in your financial aid package before signing anything.
- Evaluate your financial needs: Avoid borrowing more than necessary to reduce debt after graduation.
- Seek guidance: University financial aid counselors and a CERTIFIED FINANCIAL PLANNER® professional can help tailor advice to your unique situation.
Types of Financial Aid
It can feel like alphabet soup when there are so many options for financial aid. Understanding the types of aid will allow you to make informed decisions. Financial aid falls into two primary categories: aid that does not need to be require repayment and financial aid that does. Let’s look at both.
Grants and Scholarships, aka Free Money
Grants and scholarships require no repayment, making them the best kind of financial aid. Here’s what you should know:
- Grants: Typically awarded by the government or the university, they are based on financial need. The Pell Grant is one of the most well-known federal grants.
- Scholarships: There is a sea of scholarships, everything from merit-based to financial need to specific talents. Colleges, private organizations and foundations offer scholarships.
Loans, aka Borrowing Money
Loans are a common form of financial aid but require repayment with interest. There are two main categories.
Federal Student Loans
The government offers these student loans. They typically have lower interest rates and have flexible repayment options. These are based on the need shown in your FAFSA application.
- Subsidized Loans: These are for college undergraduate students with financial needs; the government pays the interest while the student is in school.
- Unsubsidized Loans: Available to both college undergraduate and graduate students; interest accrues while the student is in school
Private Student Loans
These are loans offered by banks or other financial institutions. These loans often have higher interest rates and less flexible repayment terms. They should be considered only after exhausting federal loan options and grant and scholarship opportunities and truly should be the last resort.
Parent Loans
Parent PLUS Loans are federal loans for parents of dependent college undergraduate students. While they can help bridge financial gaps, they have higher interest rates and require credit approval. Parents should carefully assess their ability to repay before borrowing.
By taking proactive steps, staying informed and seeking guidance from a CFP® professional, students and their families can rise above the financial challenges of higher education. With the right strategy, you or your student will not only make the grade in academic pursuits but also in managing the costs — without being weighed down by unnecessary debt.
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