With college costs continuing to rise, you probably haven't saved enough to foot the bill for a higher education. According to a college cost calculator on collegeboard.org, the price tag for four years at a public institution is $85,788. For a private college or university, the amount almost doubles to $168,896.
That's why, says Scott Halliwell, certified financial planner ™ practitioner with USAA, "it pays to explore all of your options to fund what is certainly a major investment, no matter what you've saved for college."
The cost of college keeps going up, he adds, by 5% to 8% every year.
But don't let those figures discourage you from pursuing a degree. As J.J. Montanaro, certified financial planner ™ practitioner with USAA, points out, "Study after study has shown that education has a dramatic, positive impact on lifetime earnings."
"But you don't want to get that education by racking up a boatload of student loan debt," he adds. "To that end, it pays to be creative."
Here's a look at six options to help cover the cost of college, along with the pros and cons of each.
Whether you're on your own or living under your parents' roof, you could be eligible for financial aid.
To start the process, fill out and submit the Free Application for Federal Student Aid. Based on your FAFSA, each college or university you apply to will tell you what types and how much federal aid you qualify for.
Montanaro points out another reason to complete the FAFSA: Some schools also use it to determine your nonfederal aid, which can include state grants and scholarships.
To make the most of such aid, Pam Proctor, an independent college consultant and author of "The College Hook," suggests applying to 10 to 12 colleges and universities. "When it comes time to make decisions, you will have financial aid packages to compare," she explains.
Taking the time to find and apply for scholarships and grants also can pay off. Also known as gift aid, this money doesn't have to be repaid.
QuestBridge is one such opportunity for high-achieving students whose family incomes are less than $60,000. This program gives them the chance to compete for full scholarships at 35 of the country's leading colleges, including Stanford, Yale, Notre Dame and Amherst, Proctor notes.
In addition to academic-related awards, look for offerings from associations, colleges, religious organizations and foundations that target your demographic or affiliations. As an example, Proctor points to Dollars for Scholars. In communities across the United States, the more than 1,000 volunteer-run Dollars for Scholars programs raise funds, establish endowments and distribute scholarships to worthy students.
Although starting your career with debt isn't ideal, student loans may need to be part of your college financing plan -- along with grants, scholarships and part-time wages.
One of the best loan deals is a federal direct loan, which can be subsidized or unsubsidized, depending on your financial need. With a subsidized loan, the government pays the interest while you're in college.
If you don't qualify or a federal loan isn't enough to cover the tab, consider private loans to fill the gap. Generally, student loans from private lenders come with higher interest rates.
Military service can help make your education goals a reality. The Tuition Assistance Program is a powerful incentive for those serving in the military to pursue higher education. Both enlisted members and officers can receive up to $4,500 annually for tuition and fees. Eligibility, service requirements, application processes and restrictions differ among the military branches, National Guard and Reserves.
Another military option is the Post-9/11 GI Bill -- an updated version of the World War II-era legislation that may have helped your grandfather settle back into civilian life. This benefit is offered to members of the military who have served at least 90 days on active duty since Sept. 11, 2001. Depending on length of service, the bill pays 40% to 100% of tuition and fees at an in-state public college or university, or up to $19,198.31 at a private or foreign school, with exceptions in some states.
Unlike the Post-9/11 GI Bill, the Montgomery GI Bill requires service members to enroll in the program and pay $100 per month for a year before receiving a monthly education benefit. Reservists have additional requirements to qualify. Benefits vary, but the program provides up to 36 months of education benefits.
You can prepare for military service and pay for college at the same time through ROTC programs. Some college students get their entire tuition tab picked up through ROTC and have an opportunity to serve in the military after they graduate.
If you're employed, look into whether your company offers a tuition-assistance program. Benefits often include payments for undergraduate- or graduate-level tuition, fees, books, supplies and even equipment. Some companies require that your coursework relate to your job.
Community college may be an affordable way to train for a vocation or set you on the path to a four-year college. "Community colleges can be a great option for smart students who are late bloomers or for those who aspire to elite colleges but can't bear the financial load," says Proctor.
She explains that a community college essentially offers two tracks for earning a diploma in two years:
Are you comfortable asking for help with tuition or accepting money from generous family members or friends? Make sure any benefactors know about qualified transfers. According to the IRS, this arrangement allows individuals to pay an unlimited amount of tuition directly to a qualified institution of higher learning on your behalf without being subject to the IRS gift tax. The education exclusion allows the donor to help you and avoid a tax burden at the same time. You and the one with the checkbook should consult a tax advisor before entering into this arrangement.
How Much Should You Borrow?
Montanaro and Halliwell recommend that you take the long view when it comes to student loans. "Too many students graduate today with a huge financial burden in the form of student loan payments," Halliwell points out. Montanaro adds, "Borrow with an eye on how paying back the loans will fit into your overall financial situation once you graduate."
If you aim for monthly loan payments of no more than 10% of what you expect to make monthly after you graduate, you'll probably be in good shape. Say an education major can expect to land a teaching job that pays $30,000 a year. With a monthly gross income of $2,500, his or her maximum student loan payments should be around $250 a month.
Montanaro suggests accepting only enough to cover basic educational expenses, resisting the temptation to borrow a little more to afford luxuries out of the reach of a frugal student on a tight budget.
Once you've graduated, budget so you make those loan payments by their due dates every month. A sure way to hurt your credit rating is to pay bills late.
Uncle Sam also eases the burden of college costs for those who qualify. Consider:
Income and other restrictions apply. Learn more about these options on irs.gov at the Tax Benefits for Education: Information Center, or discuss them with your tax adviser.
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