How to pay for college 101

How to pay for college 101

Is your student heading off to college? Here are 5 strategies to cover tuition and fees.
September 10, 2021

How to pay for college 101

How to pay for college 101

Is your student heading off to college? Here are 5 strategies to cover tuition and fees.
September 10, 2021

Share


With the school year back in full swing, now is the perfect time to talk to your high schooler about paying for college. Even if your student is just a freshman or sophomore, it’s never too early to begin planning for such an important investment.

It’s hard to ignore the rising cost of a college education. According to U.S. News & World Report, the average cost of tuition and fees for the 2020–21 school year was $41,411 for students attending private colleges, $26,809 for out-of-state students attending public colleges, and $11,171 for in-state students attending public colleges.

Fortunately, there are many ways to cover college costs regardless of your family’s financial situation or your student’s academic aspirations. Let’s look at five strategies that have helped millions of students and their families pay for college and can also work for you.

Savings and income

When paying for college, a clear and effective way to eliminate debt is by utilizing your family’s savings and income.

One of the best ways to get a head start on college savings is through a 529 plan, a tax-advantaged savings plan that assists with education costs. With this plan, the earlier you start, the better. If you feel that your family doesn’t have enough time to reap the benefits of a 529 plan, you can still look to utilize savings that you already have.

In addition to tapping into your family’s savings to pay for college, consider encouraging your student to pick up a part-time job leading up to and during school. Students can also consider applying for research positions where they can make money while gaining hands-on experience in their field, setting up themselves for better job opportunities after graduation.

If your student is currently working, their employer may offer tuition reimbursement. Companies such as Chipotle, Starbucks, McDonald’s, Walmart, and many others offer options ranging from partial to full reimbursement depending on students’ majors.

Financial aid

Regardless of your family’s financial situation, it never hurts to seek financial aid.

In order to apply for financial aid, you and your student must complete the Free Application for Federal Student Aid, or FAFSA, for the current school year (be mindful of deadlines). Your family’s financial information is then used to determine the type of government assistance you qualify for.

Another component of financial aid is the federal work-study program, which guarantees your student a job on campus to help them contribute to their college costs. To be considered for the federal work-study program, your student needs to indicate their interest in it while filling out their FAFSA.

Grants

Similar to financial aid, grants are awarded based on financial need and don’t usually require repayment. They vary from state to state, so it’s important to contact your state’s higher education authority to understand what is available to you. Grants are especially worth considering if your family income isn’t considered high and you have limited savings available.

Scholarships

While financial aid and grants are need-based, scholarships are merit-based. If your student has good grades and test scores, they should apply for as many academic scholarships as possible.

Aside from purely academic scholarships, there are scholarships available for populations such as first-generation students, minority students, student-athletes, students with community or military service backgrounds, or students pursuing certain careers.

The internet has made it easier than ever for students and families to find and apply for scholarships thanks to websites such as Chegg, Scholly, and Fastweb, which allow students to browse thousands of scholarships.

Loans

The reality of the rising cost of a college education means your student will likely take out a loan at some point during college. This makes it even more important to be strategic while navigating the loan process.

First, you and your student should determine whether federal loans or private loans are best for your situation. Federal loans are borrowed from the government, and unlike private loans, they don’t require a credit check or cosigner. There are two main types of federal loans: direct subsidized and direct unsubsidized. Direct subsidized loans are available to students who demonstrate financial need, as the government pays the interest on the loan while the student is in school. Direct unsubsidized loans are available to all students, but students are responsible for paying the interest on the loan during all periods.

With private loans, you and your student have many options for servicers and repayment plans. You'll have the option to choose between a fixed interest rate or a variable interest rate; fixed interest rates remain the same throughout the term of the loan, while variable interest rates change with the market. Interest rates vary from one private loan servicer to the next, so it’s crucial to do your research to find the best rates.

On average, interest rates of private loans tend to fall between 3.34% and 12.99% fixed, and between 1.04% and 11.98% variable. For federal loans, interest rates typically range from 2.75% to 5.30%.

Thinking through all the options and choosing a plan that works right for you requires time and a good understanding of the implications of each of these strategies for your family. If you have questions about what is right for you, Wintrust can help. Our advisors can evaluate your situation and make appropriate recommendations for a plan based on your individual needs. Set your student up for success by connecting with a Wintrust advisor in your community here.

Stay Connected