Although a college or university degree is not free, there are lots of ways that you can get help paying for your degree. It is important to both understand the expenses behind your education and the many places you can turn to for financial help.
Expenses you may encounter:
- How much is the degree or certificate you want to earn going to cost?
- What factors go into the cost of the college?
- What costs are included in tuition?
- What costs are not included in tuition?
- What is college worth to you?
- How much money can you afford to spend on college?
- Where can you get financing for college if you need help paying for it?
- How much money do you think you could afford on a monthly basis to pay back a loan related to financing college?
- What is the current interest rate on student loans?
- Are interest rates all the same?
- What do you think your life will be like after college?
Paying for college is an undeniable component of the educational process. While there are political discussions underway about making college free, at this point in time, students must pay for college themselves or with the help of others. Understanding the factors that combine to create the overall cost of a college education can help a student make decisions about the college that is right for him or her.
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.
College costs typically include these 7 main categories:
- Tuition: The price you pay for taking college classes is based on a number of factors. Some academic programs, like business degrees, are more expensive than others. Knowing whether a major charges a differential tuition rate might help you decide how or whether to pursue it. Tuition is also affected by how many credits you take every term and whether or not you have selected a school in the state where you live: out-of-state tuition can cost a lot more than in-state tuition. Also, whether thethe school is public, private, for-profit, or non-profit has a big impact on tuition. Some private schools’ tuition is more than double that of public institutions.
- Fees: 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 student health center may have a basic fee that all students must pay whether they use the service or not. Some colleges have dining fees that give students food cards to use on campus. Student fees are not fees students can opt out of. It is important for students to examine a college’s fee structure and maximize the services that are being paid for by fees.
- Books and supplies: The cost of books and the supplies students will need to complete a program can vary greatly. 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 option, 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. Often, students will end up financing the cost of books and supplies with financial aid. It is important to remember that an additional $1000 financed with aid or credit cards can quickly add up to an unanticipated cost of college.
- Transportation: Getting to and from college costs 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 (trains or buses) options for getting to school, however some colleges have free shuttles between different campuses. Colleges may also have parking fees for those students who drive to the campus. Most universities have deals with the local transportation service, allowing students access to discounted bus or transit passes. As a student estimating the cost of college, remember to think about the entire school year.
- Living Expenses: Where will you be living while attending college and with whom? The answer to this question determines a major factor in the overall cost of attending college. Living with family may be less expensive for some, but many times is not an option for students. Answers to the question of where you will live and how much it will cost vary greatly. One thing to think about is how much did it cost you to live last year? Will going to school change that and if so, how? Will you have to eat or spend money on groceries/meals differently than in the past? If the college you choose has a dining fee built into your tuition costs, don’t overlook using it. Also, check to see if your college or university has a food pantry, a free food market, or discounts on food dining fees for low income students.
- Personal Expenses: Another wide open category of cost, but don’t forget you will still need basic health care and hygiene. And you will still have social events and family commitments. Students tend to underestimate how much money will be needed for personal expenses. For example, many students today cannot survive without smart phones, computers, and data plans.
- Opportunity Cost: 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 somewhere else. 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. This means that, at least in the short-term, you may not be able to make much money. However, you may be able to make more money with your degree or certificate once you have earned it.
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.
The Office of US Department of Education offers financial assistance to students in the forms of grants, loans, and work-study programs. The application for these programs is done through the FAFSA (Federal Student Aid) application. Filling out the FAFSA application is the first step towards receiving financial aid for college. The FAFSA application can only be filled out once per year, and it opens quite early. For example, the FAFSA application for the 2022-2023 academic year opened on October 1st, 2021 and is due at the beginning of 2022. This means that you should begin your application process for the FAFSA early! Even if you are continuing in college, you’ll need to complete your FAFSA application each year to make sure you are getting your financial aid. Make regular appointments with the financial aid office at your institution to make sure you are getting help filling out the application so you can get the most benefit possible.
It is a good idea to fill out the FAFSA even if you are not sure you want to take out loans. Filling out the application gives you access to more than just loans. You might also get offered federal grants and will be eligible for work study based on your FAFSA status.
If you don’t qualify for the FAFSA or your feel uncomfortable disclosing your parents’ tax status or documents to the federal government, there are often other, local programs that can help. For example, Oregon offers financial aid for undocumented or DACA students through the ORSAA program (https://oregonstudentaid.gov/finaid-undocumented.aspx). There are also often grants through worksource programs for trainings and certificates (https://worksourceoregon.org/es/jobseekers), if you are going into a professional career. Check to see if your state offers similar programs.
Grants vs. Loans vs. Scholarships
In looking for money to support your study, it is important to understand the difference between grants and loans. The most important difference is that you have to pay back loans, usually with interest. Also, loans are limited. If you spend too much of your loan money while at a 2-year college and then transfer to a 4-year college, you may not be able to take out more money. Grants and scholarships, on the other hand, usually do not have to be repaid and while the individual award amounts are limited, there is no limit to how many grants you can get while at school. One challenge is that grants are often for very specific things, like textbooks or a professional certificate. They are often smaller and more competitive than loans, which have fewer requirements and offer more money. Scholarships are also often quite competitive, but they can be larger and generally cover tuition expenses.
You can apply for grants and scholarships at any time during your program of study, depending on when the deadlines are. For these types of awards, there is often an application process where you have to provide evidence for your need (financial hardship grants and scholarships) or your ability (scholastic achievement grants and scholarships). It is a good idea to research these awards through your college’s financial aid website. Look for grants and scholarships you qualify for and start preparing your application early. Identify people who can provide you with strong letters of recommendation and get help from your college’s writing center on your application essay. If you are not selected for the award, don’t give up! Apply again the next time the award is posted.
Visit the US Department of Education Youtube page to get answers to your questions about loans, grants, and scholarships (all videos have subtitles in Spanish): https://www.youtube.com/channel/UCEnu3BHoR9IYgBnCkqQdgmA
Understanding Student Loans
Taking out student loans can be risky. Many students find themselves deep in debt after their education. If you can avoid taking out a loan, that might be best. However, if it is necessary to take out a loan, it is essential to understand how interest rates impact the amount of money you will need to repay. It is also essential that students understand the difference between a subsidized and unsubsidized loan. Both types of loans may be offered to a student in an award letter for financial aid. Subsidized loans do not add interest while a student is attending college, whereas unsubsidized loans begin charging interest as soon as you take out the loan, like a car loan would. Many of the horror stories about the burden of college debt on students when they graduate from college could be avoided if students better understood options for financing their college education and examined their college selection process in greater detail.
Community College Annual In-State tuition is approximately $4,000 for each year of college
*Stafford unsubsidized loan rate for 2021-2022 is 3.73%
|First Year of College||Second Year of College|
|A= 4,000 (1 + .0373)2
Total cost for loan over 2-year period:
$4,303.97 + $4149.20 = $8,453.17 (money borrowed first will accrue interest the longest)
The interest accrued on the loan in a 2-year period is $453.17
College offering Bachelor’s Degree In-State Tuition at approximately $10,000 each year
*Stafford unsubsidized loan rate for 2021-2022 is 3.73%
|First Year||Second Year|
|Third Year of College||Fourth Year of College|
Total cost for loan over 4-year period:
$11,577.57+ $11,161.26+ $10,759.91+ 10373.00= $43,871.74
The interest accrued on the loan in a 4-year period is $3,871.74
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 or $10,000.00, but unsubsidized loans add interest to the amount borrowed that adds up over time. Subsidized loans do not add interest while the student is attending college, so $4000.00 really is $4,000.00, no extras added.
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. While the tuition may have been $4000.00/year, the amount financed was more than that. Example 3 demonstrates this scenario.
|Year 1||Year 2|
|Community College tuition = $4,000.00
Books and supplies = $1000.00
New computer = $1000.00
Total Loan amount = $6000.00
A= 6,000 (1 + .0373)2
|Community College tuition = $4,000.00
Books and supplies = $1500.00
Other fees = $350
Total Loan amount = $5850.00
Instead of owing $8,453.17 like in Example #1, total cost for loan over 2-year period:
$6455.95 + $6,068.21 = $12,524.16 which is $4070.99 more for the same time period and degree. Be watchful when adding even small amounts of money to your loan balances. It can add up quickly!
Students need to remember that they are consumers 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 could you 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 to be able to repay the loan. Of course, the loan calculator will not know your other financial commitments or your income after you graduate, so be sure to look at the monthly payment and decide if you afford that additional expense. College debt is considered a partial economic hardship if it requires you to use more than 15% of your discretionary income.
Here are 2 examples using the same colleges costs as the previous examples:
|Adjusted Loan Balance:||$10,000.00|
|Loan Interest Rate:||3.73%|
|Loan Term:||10 years|
|Monthly Loan Payment:||$99.97|
|Number of Payments:||120|
|Total Interest Paid:||$1,995.95|
Note: The minimum monthly payment must be at least $50.00. Also, there isn’t a prepayment penalty for repaying loans early. If you pay as little as $25 more each month on the loan you can shorten the duration of the loan by almost 3 years.
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, expect under rare circumstances.
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.
Financial aid vocabulary is a specialized language that students participating in the process must understand. Below are a few key vocabulary words that can help you better understand financial aid.
Common Financial Aid Vocabulary Definitions
|Award package||The way colleges and universities deliver their news about student eligibility for financial aid or grants. The most common packages include Pell Grants, Stafford Loans, and Work Study.|
|Borrower||A person or group that obtains funds from a lender for a particular period of time. A borrower signs a “promissory note” as evidence of indebtedness.|
|Campus-Based Financial Aid Programs||The three major aid programs are funded by the federal government, but the disposition of the funds is handled by colleges’ financial aid offices. The aid programs are: the Federal Supplemental Educational Opportunity Grant, the Federal Perkins Loan, and Federal Work-Study (FWS).|
|Cost of education||This includes tuition and fees, room and board, books and supplies, transportation, and miscellaneous expenses. A student’s financial aid eligibility is the difference between the cost of education and the Expected Family Contribution as computed by the federal government using the FAFSA.|
|Default||A failure to meet a financial obligation, especially a failure to make a payment on a loan. Defaults are recorded on permanent credit records and may result in prosecution and/or loss of future borrowing possibilities.|
|Dependent Student||A student claimed as a dependent member of household for federal income tax purposes.|
|Expected Family Contribution (EFC)||The amount of financial support a family is expected to contribute toward a child’s college education. This amount is part of the formula used by the federal government to determine financial aid eligibility using the FAFSA form.|
|Federal Direct Loan||A group of federal loan programs for which the lender is the federal government. Included in these programs are government-subsidized loans for students and unsubsidized loans for both students and parents.|
|Federal Pell Grant Program||This is a federally sponsored and administered program that provides grants based on need to undergraduate students. Congress annually sets the appropriation; amounts range from approximately $400 to $3,000 annually. This is “free” money because it does not need to be repaid.|
|Federal PLUS Loan||A nonsubsidized loan program for parents of undergraduate students under the Federal Education Loan Program umbrella|
|Federal Perkins Loan Program||A federally run program based on need and administered by a college’s financial aid office. This program offers low-interest loans for undergraduate study. Repayment does not begin until a student graduates.|
|Federal Stafford Loan||A federal program based on need that allows a student to borrow money for educational expenses directly from banks and other lending institutions (sometimes from the colleges themselves). These loans may be either subsidized or unsubsidized. Repayment begins six months after a student’s course load drops to less than halftime. Currently the interest rate is 0 percent while in school and then is variable up to 8.25 percent. The loan is typically repaid within ten years. Be sure to know the interest rate at the time of borrowing.|
|Federal Work-Study Program (FSW)||A federally financed program that arranges for students to combine employment and college study; the employment may be an integral part of the academic program (as in cooperative education or internships) or simply a means of paying for college.|
|Financial Aid Award Letter||Written notification to an applicant from a college that details how much and which types of financial aid are being offered if the applicant enrolls.|
|Financial Aid Package||The total amount of financial aid a student receives for a year of study.|
|Free Application for Federal Student Aid (FAFSA)||This is the federal government’s instrument for calculating need-based aid. It is available from high school guidance departments, college financial aid offices, and the Internet (www.fafsa.ed.gov). The form should be completed and mailed as soon after January 2 as possible.|
|Gap||The difference between the amount of a financial aid package and the cost of attending a college or university. The student and his/her family are expected to fill the gap.|
|Gift Aid||Grant and scholarship money given as financial aid that does not have to be repaid.|
|Grants/scholarships||These are financial awards that are usually dispensed by the financial aid offices of colleges and universities. The awards may be need- or merit-based. Most are need-based. Merit-based awards may be awarded on the basis of excellence in academics, leadership, volunteerism, athletic ability, or special talent.|
|Lender||One who provides money on the condition that the money be returned, usually with an interest charge.|
|Merit awards, merit-based scholarships||More “free” money, these awards are based on excellence in academics, leadership, volunteerism, athletic ability, and other areas determined by the granting organization, which can be a college or university, an organization, or an individual. They are not based on financial need.|
|PIN||Personal identification number.|
|Student Aid Report (SAR)||Report of the government’s review of a student’s FAFSA. The SAR is sent to the student and released electronically to the schools that the student listed. The SAR does not supply a real money figure for aid but indicates whether the student is eligible.|
|Subsidized Student Loan||The government is paying the interest on the loan while the student is in college at least part-time (six credits).|
|Tuition||Amount of money charged to students for instructional services. Tuition may be charged per term, per course, or per credit.|
|Unsubsidized Student Loan||The interest is accruing while the student is in college. The government is not paying the interest on the loan.|
Making It Personal:
- What is the tuition cost for the college/program you want to enroll in?
- What additional fees can you expect to pay along with tuition?
- What kinds of services will you get from the additional fees you pay?
- Can you estimate the cost of books and supplies for your chosen program?
- Are you more likely to be a full-time student or a part-time student?
- What is your plan for paying for college?
- If you were to take out loans, how much money do you think you would need to borrow?
- Who is ultimately responsible for your college expenses?
- Have you filled out the FAFSA application?
- What do you feel like you need more help with in relation to financing college?
Video: Why Financial Aid Is Broken And A Simple Solution to Fix It, Susan Dynarski (TED Talk)
Licenses and Attributions:
CC licensed content, Previously shared:
A Different Road To College: A Guide For Transitioning To College For Non-traditional Students. Authored by: Alise Lamoreaux. Located at: https://openoregon.pressbooks.pub/collegetransition/chapter/chapter-8/ License: CC BY: Attribution.
Adaptions: Reformatted, removed some videos. Adjusted interest rates for 2021-2022 academic year.
All rights reserved content:
Susan Dynarski. Why financial aid is broken and a simple solution to fix it. Tedx Talks Indianapolis. Located at https://youtu.be/UEvdL_FodYU