In 2016, the average cost per year of a college degree is $24,610 for in-state schools and $49,320 for private schools. It is easy to see how quickly the cost adds up. In addition to the high cost of schooling, Universities now consider a six-year time frame for a bachelor’s degree as graduating on time, which could total $147,660 for a public university and nearly $300,000 for a private school education.
Most good-paying jobs require a college degree. The correlation between a college degree and higher lifetime earnings are undisputed. However, the rising costs have more families trying to figure out how to pay for it all.
Seek Free Money First
Grants are not only for low-income families. The money does not require repayment, and most accredited schools offer a range of grant opportunities. After completing the FASFA, even if you don’t think you will qualify for aid, the school can match you with available grants based on income and family size. Government agencies sponsor most grants which can be an automatic part of the financial aid process.
Scholarships offer another opportunity to locate free money and provide financial assistance for all levels of students, not just freshmen or athletes. Begin searching for scholarships in high school and continue every year. Both undergraduate and graduate students should take advantage of this free money. Scholarships offer millions of dollars for students in all walks of life. The earlier you look, the more you are likely to find. Not all scholarships are found through your university – clubs, local programs, businesses, or volunteer programs may also offer some type of tuition assistance.
This USA Today article (please click the hyper link) offers a resource for the top websites to locate scholarships. Each site provides simple search tools to identify scholarships you qualify for, saving you both time and money. Each company lists different scholarship opportunities, so it is a good practice to utilize multiple searches.
Tax Credits do not directly reduce the cost of tuition but do offer tax breaks for out of pocket costs for both parents and dependent children. The American Opportunity Credit offers a tax break of up to $2,500 per child for their first four years of college. The student must be in a degree program, attend at least one-semester half-time or greater. You – WHO IS THE YOU – the parent or child? can claim 100% of the first $2,000 in qualified expenses and 25% of the next $2,000, for a maximum of $2,500 per student.
The Lifetime Learning credit does not require a degree program or half-time attendance, allowing both undergraduates, graduates, and continuing education students to take advantage of the credit. While this is not as generous as the American Opportunity Credit, you WHO IS THE YOU can claim 20% of the cost of mandatory school costs up to $10,000 or a maximum credit of $2,000 per year per student. You cannot claim both credits for a single student in the same year.
After tapping out available free money, there are several loan options to make up the cost difference. Here are the most common forms of lending available to families:
Federal student loans come in two forms, subsidized and unsubsidized loans. Federal student loans are the best option because they secure a low-interest rate, have generous repayment terms, a grace period after leaving school for six months, and follow federal guidelines. They are available to both undergraduate and graduate students and account for the vast majority of student loans issued.
College students qualify for a subsidized loan based on financial need. These loans do not charge interest to the account while you remain in school. The government subsidizes the interest payments through the six-month grace period. When you begin repayment, interest charges begin to accumulate on the account.
Unsubsidized loans capitalize all interest while you are in school. After graduation, you owe the borrowed amount plus any accumulated interest for the period it took you to graduate. You may make interest-only payments while you are in school to eliminate the added cost of interest and its compounding effect.
Parent Plus Loans can subsidize financial aid packages when you need additional money after maximizing the federal student loans, although they have a higher interest rate and stricter loan terms than the federal counterparts. Local banks offer these loans and terms vary by lender. Payments of Parent Plus Loans typically begin after loan distribution, rather than after graduation.
Equity lines of credit is another popular way to pay for college costs. Homeowners with adequate equity can take out a line of credit secured by the home, and then access the line as needed. The advantage of an equity line is that interest is typically tax deductible, and, you can make interest only payments for many years. The downside is you put your home on the line. Payments begin immediately. Money used to pay for school from the equity line will also qualify for the tax credits each year.
Sign up for a payment plan. Many colleges now offer payment plans, which allow you to pay out of pocket costs throughout the year, instead of a lump sum each August and December. Schools may allow you to make payments on tuition or room and board costs, with reasonable terms and interest. The downside is you must pay off each year before the next year begins.
Move off campus or live at home. Room and board can more than double the cost of attending school. Living at home or in an off-campus apartment may let you to control costs better.
Add part-time employment. Working 10 to 15 hours per week can give you spending money, and reduce the amount you must borrow, without impacting your school performance. Studies show working over 20 hours a week can impact grades and delay graduation.
Start at a less expensive school. Spending your first two years of college close to home, at an in-state school or community college, could save you thousands of dollars without impacting future job prospects.
With the cost of an education rising faster than inflation, it is essential to review your financing options to find creative ways to pay for a degree. The less you borrow, the better your financial position will be upon graduation.