How to Pay for College: Financial Aid Basics

Financing college. It can seem like an overwhelming topic, especially for first time college students and parents. If you’re feeling lost in the process and find the college financing talk confusing, you are definitely not alone! And all those students and parents that seem to have it “together" — it probably took them hours, weeks, and months to figure it all out.

When you start the process, it’s always helpful to understand the basics. This article will help you get started.

What should I consider when finding the right college?

There has always been an emphasis on finding the right academic fit, for good reason. But determining if the college is an appropriate financial fit is equally important. Financial fit is critical because choosing a school that will require you, or your parents, to take out loans can have a long term financial impact.

When researching schools, take into consideration each school’s cost of attendance. You can also use the FAFSA4caster to help determine the actual cost of attending a certain school. This doesn’t mean you can’t try for your dream school, but being informed about the cost is part of the process in determining the right school.

What are my college financing options?

There are several different ways you can finance college, but if you’re looking for where to start, some of the most common are listed below.

  • Federal student aid offered by the government
  • State funds offered by the state where you reside
  • Institutional/school funds offered by each specific college
  • Banks and credit unions who offer educational lending options
  • Savings plans and accounts
  • Military benefits which can provide educational benefits to service members, veterans, or their dependents
  • Scholarships from public and private sources

Types of Financing – The Common Terms

Getting a handle on financing options starts with understanding the lingo. Here are a few terms you’ll likely hear.

  1. Gift Aid – When websites or financial aid professionals mention gift aid, they just mean any funds which can be awarded to a student that do not need to be paid back. Gift aid often includes:
  • Grants
  • Scholarships

Gift aid can be awarded from a variety of sources, including the federal government, state governments, schools, and private organizations. The more gift aid you can get, the better!

  1. Non-Gift Aid – This is money you either need to earn or repay.
  • Loans –This is the most well-known form of non-gift aid. The most important take away from loans is that they, over time, can be expensive and will require years of repayment. You should be aware, if you have to borrow for your first year, there is a high chance that you will need to borrow for the rest of your time in college. And if that is four years or more, it can add up. Loans can be issued from a number of sources.
    • The federal government under the Federal Direct Loan program
    • State programs
    • School-offered programs
    • Private lenders in the form of private student loans

Other options of non-gift aid include:

  • Work-study – Work-study allows you to work part-time while you’re enrolled in school. If your school participates, there will be a list of jobs you can choose from. Although the amount of funds you can earn may seem small, they can still be put to good use! Work-study programs may be funded by the federal government or by the school you are attending.
  • 529 College Savings Plans – A 529 plan can be a college savings plan or a prepaid tuition plan – these are tax-advantaged savings plans designed to encourage saving for future college costs. These types of plans require saving, and are usually started by parents or family members when a child is young. If college is still a few years in the future, now is a great time to talk to a financial professional about starting a 529 college savings plan.
  1. Military Benefits – There are military benefits which are offered to service members, veterans, and their dependents. Some well-known types of military education benefits include the GI Bill, the Post-9/11 GI Bill, and Army ROTC scholarships, and as part of the federal student aid package, additional grants such as the Iraq and Afghanistan Service Grant or additional Federal Pell Grant funds.
For more information, please visit the U.S. Department of Education’s site which discusses the different types of programs available.

It’s best to familiarize yourself with the types of financing options available. As you discuss the options which will be made available to you at each school, start identifying what types of aid are gift aid and non-gift aid. If you think you may need additional help when paying your tuition bill, check out some Last Minute Help for College Tuition.

Good luck with your search, and be sure to check our blog to find other useful tips!