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  • Ways to Pay for College

Common Ways to Pay for College

Student calculating the cost of college.

How do people pay for college? If you’re wondering, you are not alone. For many families, the panic button goes off when the cost of paying for college sinks in. Here are the options most families consider when looking for ways to pay for college.

Most families use a variety of ways to pay for college—from financial aid to tax breaks. Here's a basic rundown of how to finance a college education.

Paying for college with your own resources

Families can save for college using tax-advantaged plans, such as 529 College Saving Plans and Coverdell Education Savings Accounts. Other funding includes parent and student income, contributions from grandparents and other relatives, sales of assets, etc.

Tip: Use retirement savings only as a last resort. Parents will eventually depend on those funds for their own support.

Paying for college with borrowed money

Loans are part of many families' college financial strategy. Loans offered by the college as part of the aid package usually have the lowest interest rates. Families can also take out federal PLUS Loans or loans from private loan providers.

Tip: Some families use credit cards or borrow against assets, such as home equity and life insurance. These are two of the riskier ways to pay for college. Be sure to evaluate the expense and risk of these options before making a commitment.

Paying for college with tax reductions

The government offers tax breaks for higher education. These allow some taxpayers to subtract certain college-related expenses from the tax they owe.

Tip: Get to know the government's rules for these programs. You can take only one credit or deduction per year, in addition to the student loan interest deduction.

Paying for college with need-based financial aid

Families who prove they cannot afford to fully cover college expenses are eligible for financial aid. For many families, financial aid is the major source of college financing and is usually at the top of the list when they consider ways to pay for college.

Tip: Only two types of aid actually cut college cost: grants and scholarships. The other forms of aid, loans and work-study (paid employment), must be repaid or earned. Be careful when evaluating aid packages and make sure you understand how much you’re being offered in grants and scholarships vs. loans.

Paying for college with merit-based aid

Colleges may offer merit aid as an incentive to enroll. This aid is based on academic performance or other talents, and not on financial need. Other sources of merit-based aid include outside scholarship providers, employers, and service organizations. Merit aid and scholarships can be great ways to pay for college.

Tip: Ask colleges about their "outside scholarship" policies. Some colleges reduce the aid they award by the amount of scholarship aid received from outside sources.

Paying for college by choosing an affordable college

Look for affordable colleges with track records of generous merit aid, high four-year graduation rates, and low rates of graduate debt.

Tip: The cheapest college is not always the best choice. Always take college fit into consideration. An inexpensive college might not offer the same career or educational opportunities, or have limited classes available which can lengthen the time it will take to graduate. On the flip side, the most expensive college may not be worth the investment, especially if you’re unhappy there.  

Paying for college by reducing college costs

Get inexpensive college credit through AP testing and community college courses. Enroll in public service programs, such as the ROTC, which cover some college costs. Consider enrolling in community college for a year or two and transferring to a more expensive four-year college later.

Tip: Manage college expenses. Buy used textbooks, limit eating out, and stick with a budget. It takes discipline, but students can live cheaply during college and still have a great experience.College is expensive. Figuring out ways to pay for college will be one of the biggest challenges you will face, but don’t let it intimidate you. Just know that there are options to help you meet that challenge. Develop a college game plan and stick with it to pursue your passion! It can be done.

What's Next?

Find out how to apply and qualify for financial aid.

Use the Net Price Calculator to estimate your cost at any four-year college.

Visit Pay Your Way for articles and tools that will help you better understand college costs and how to pay for them.

Use the Student Loan Calculator from 1FBUSA to find out how student loans may affect your financial future. See what your loan payments will be compared with how much you can afford to pay based on your expected salary after graduation.

Financial information contained on the CollegeData website is for general informational purposes only and may not apply to you or your situation. You should not act or refrain from acting on the basis of any financial content contained on the CollegeData website without consulting with a financial or tax advisor, or your parents, high school counselors, admissions representatives or other college counseling professionals. We disclaim all liability for actions you take or fail to take based on any content on the CollegeData website.