How to Pay for College

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Mark Kantrowitz

By Mark Kantrowitz

July 27, 2023

The question of “how are we going to pay for college?” is something that many parents and students continue to weigh every year. Going to college has become more expensive than ever and it typically requires money coming from multiple avenues in order to pay for an education. In addition, paying for college is a complicated topic with an alphabet soup of acronyms like FAFSA, SAI, and SAR. Parents worry about missing something important that will affect their child’s future. Here is everything you need to know about saving and paying for college.

The Landscape of Paying for College

Most families will rely on several resources for covering college costs, as there is no single solution that addresses the need entirely on its own unless you’re very wealthy. These resources should be compared with the total net price of the complete college education. The net price of college is the difference between total college costs and financial aid that is gifted, such as grants, scholarships and other money that does not need to be repaid. 

If the total resources exceed the total net price, then the college is an affordable option for you. Otherwise, the family may be forced to borrow an unreasonable amount of money to cover the tuition bill and other related costs. Like any major expense, the cost of paying for college will be spread out over time, and it will look something like this: 

  • Past: Some of the money will come from past income, in the form of savings.
  • Present: Some of the money will come from current income and financial aid.
  • Future: Some of the money will come from future income, in the form of student loans.

It’s also never been more expensive than it is right now to go to college. That is why it’s so important to make sure that you limit how much you have to pay that comes from the future bucket. You don’t want to be paying back student loans for the rest of your life, but you may also need that college degree to change your life or get the career you really want. It’s a balance that must be weighed. This is why we put together the best options to help you pay for college.

6 Best Ways to Pay for College

While there are many different ways to cut down the total cost of college, you’ll likely want to consider more than one throughout the typical four years it takes to graduate. Here are the six best ways to pay for college that might be relevant to you and your family. 

1. 529 College Savings Plans

Families can save for future college costs using a 529 plan. A 529 plan is a savings account that provides several tax and financial aid advantages and allows you to pay for college tuition or all of the expenses related to getting that education. Here are the two largest advantages to this over other savings accounts:

  • Tax Advantages: More than two-thirds of the states provide a state income tax deduction or tax credit based on contributions to the state’s 529 plan. Earnings accumulate in the 529 plan on a tax-deferred basis and are entirely tax-free if used to pay for qualified higher education expenses.
  • Financial Aid Advantages: If a 529 plan is owned by the student or the student’s parent, the 529 plan is reported as a parent asset on the FAFSA and distributions are ignored. This has a minimal impact on the student’s eligibility for need-based financial aid.

In addition, your extended family may be able to contribute to your children’s educational costs. With a 529 plan, other family members – such as grandparents – can make contributions to your 529 account, or even open their own.

The best 529 plans offer several other key benefits, such as a reduction in the need for student loans and increased flexibility in college choice. Every dollar saved is a dollar less borrowed. It is cheaper to save than to borrow. If your state of residence offers a state tax deduction or credit for 529 contributions, it will help reduce your taxes each year, which may also provide you with a little extra to put back into your 529 college savings account.

2. Federal Financial Aid

Most students who are U.S. citizens and permanent residents may qualify for unsubsidized federal student loans and federal parent loans by filing the FAFSA if they are enrolled at least half-time. Students with financial need may also qualify for subsidized federal student loans, where the federal government pays the interest while the student is in school and during the 6-month grace period after the student graduates or drops below half-time enrollment.

Students should always borrow federal first, as federal student loans are less expensive and have better repayment terms than private student loans and parent loans. If a student needs to borrow from the Federal Parent PLUS loan program or private student loans, it may be a sign that the student is borrowing more money than they can afford to repay. If the total student loan debt at graduation is less than the student’s annual starting salary, the borrower should be able to repay their student loans in 10 years or less.

3. Grants and Scholarships

To find scholarships, use a free scholarship search site, such as Fastweb or the College Board’s Big Future. Never invest more than a postage stamp to find out information about scholarships or to apply for a scholarship. If you have to pay money to get money, it’s probably a scam. Grants are similar where you can apply for a need-based grant or earn money for a specific skill you have.

4. Cash From Savings and Work

You may choose to keep savings in a non-529 account for various reasons. While there won’t be any tax benefits to doing it this way, there also aren’t any restrictions to how you spend your money, so you could use these funds to pay for expenses that are considered non-qualified for 529 plans. In addition, many parents pay for college expenses out of current income as well as savings. If you have a 529 plan and are in a state that offers a tax benefit for 529 contributions, you may wish to deposit this money in the 529 account first to take advantage of that benefit.

5. Work During School

One good way to pay for school, especially if for students who have a full or partial scholarship lined up, is to work part-time while in school. This can help pay for room and board, books, or possibly even tuition. Working full-time during the summers can help to pay for the next year’s worth of expenses. This is becoming increasingly more difficult to do for students who need to pay for their whole education, though, because it has become so expensive. 

6. Private Loans

As a last resort, you may want to consider private loans. It’s important to know how much these loans will cost to pay back, and consider whether a student’s chosen major and profession will provide enough income to make these payments. And keep in mind that with private loans, the interest isn’t deferred and will start accumulating immediately.

Other Ways to Reduce College Expenses

About half the cost of a college education involves living expenses, such as room and board, books, supplies and equipment, transportation to and from college and miscellaneous/personal expenses. Each of these presents an opportunity to save on college costs.

  • Live With Someone: Cut the cost of room and board by living at home with your parents, if they are nearby. Or live off campus and split the rent with a roommate.
  • Get Good Grades: Improve your academic performance. Getting good grades and admissions test scores can affect eligibility for academic scholarships at some colleges. Some private scholarships also depend on your grades and test scores. Maintaining good grades is often required to renew your scholarships in subsequent years.
  • Buy Cheap Textbooks: Buy used textbooks and/or sell your textbooks back to the bookstore at the end of the semester. Ask the professor for their evaluation copy of the textbook. Or borrow the textbook from the college library. Rent the textbooks. Share textbooks with your roommate and other friends. Buy only the required textbooks. These tips can save about half of textbook costs.
  • Don’t Visit Home as Frequently: You can minimize the number of trips home from college. Don’t bring a car to campus, as parking costs can be expensive. Use public transportation and ride-sharing instead. If you do bring a car to campus, driving for Uber and Lyft can earn you extra money when you have free time on your schedule.

In general, your goal should be to live like a student while you’re at college, so you don’t have to live like a student after you graduate. Here are some other ways that you can reduce your overall college expenses related directly to your tuition costs:

Choosing a Cheaper College

One of the best ways of cutting college costs is to enroll at a less expensive college. Students should apply to a mix of several colleges based on academic fit and financial fit. Use the college’s net price calculator to get a personalized estimate of the net price, to evaluate the college’s affordability.

The least expensive options generally include in-state public colleges, colleges that offer “no loans” financial aid policies and free tuition colleges. A private college is generally the most expensive option.

Studying Abroad

Studying abroad for the student’s entire educational program may be less expensive than U.S. private colleges, even with added travel costs, but just as prestigious. However, the Federal Pell Grant and other government grants are not available for study outside the U.S., just U.S. federal student loans.

Community College

Although taking a detour through a community college on your way to a Bachelor’s degree may save some money, you may ultimately miss your destination. Only about a fifth of students who intend to obtain a Bachelor’s degree and start off at a 2-year college succeed in getting a Bachelor’s degree within six years. That compares with about two-thirds of students who start off at a 4-year college.

Take a Gap Year

Taking a gap year may give you time to earn money to pay for college. But, the money will count against your eligibility for need-based financial aid. Also, students who take a gap year get out of the habit of studying and are less likely to enroll in and graduate from college.

High School Programs

You can earn college credits in high school through dual enrollment programs, as well as AP, IB, CLEP and PEP tests. Look on the college’s website to learn about their test score requirements for awarding college credits. Even if you earn college credit, it may serve as general credits only and not substitute for specific prerequisites.

Tips for Applying for Financial Aid

Only a small percentage of the college population end up never having to borrow any money to go to school. Even families that saved for college often end up borrowing at least part of their educational expenses. This is why it’s important to know how to navigate the financial aid process. Here are some of the best tips to lower your total borrowing costs. 

Fill Out the FAFSA as Early as Possible

To apply for need-based aid, file the Free Application for Federal Student Aid (FAFSA). The FAFSA is your gateway to grants from the federal government, state government and most colleges and universities. Less than 200 mostly private colleges use a supplemental form called the CSS Profile for their own financial aid funds, but these colleges must still use the FAFSA for federal aid and state aid.

Families should file the FAFSA every year, as close as possible to the time the form becomes available, even if they got only student loans last year. Subtle changes in the family’s circumstances can have a big impact on the amount and types of financial assistance you receive. For example, increasing the number of children in college from one to two can be like dividing the parent income in half. 

Other factors that can affect aid eligibility include changes in income and assets, dependency status and marital status. Families also have a tendency to overestimate eligibility for merit-based aid and underestimate eligibility for need-based aid.

Free help completing the FAFSA is available from the U.S. Department of Education’s Federal Student Aid Information Center (FSAIC) at 1-800-4-FED-AID (1-800-433-3243). The FSAIC also runs Twitter chats via @FAFSA and #AskFAFSA. The National College Access Network (NCAN) sponsors free College Goal Sunday programs in many states that provide one-on-one help completing the FAFSA.

Be sure to appeal for more financial aid if the family is affected by special circumstances. Special circumstances include anything that changed since the base year and anything that distinguishes the family’s ability to pay from that of the typical family. This can include job loss, salary reductions, high unreimbursed medical and dental expenses, high dependent care costs for a special needs child or elderly parent, casualty losses, private K-12 tuition, parents enrolled at least half-time in college, homelessness and disability-related expenses.

Take Advantage of Educational Tax Benefits

There are several education tax benefits that can be claimed when you file your federal income tax returns. These include the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Tax Credit (LLTC), which are based on amounts paid for college expenses. There’s also the Student Loan Interest Deduction, which provides an above-the-line exclusion from income for up to $2,500 in interest paid on federal and private student loans.

File for Employment-Based Aid

You can find several types of financial aid that are based on employment. When you file the FAFSA, you may qualify for Federal Work-Study (FWS) and other forms of student employment. Even if you don’t qualify, there are plenty of part-time jobs, summer jobs and paid internships on or near college campuses.

Some employers provide employer-paid tuition assistance. As much as $5,250 a year in employer-paid tuition assistance is excluded from income. Most employers require you to get at least a B for your tuition to be eligible for reimbursement.

Employers may also offer student loan repayment assistance programs (LRAP) as a recruiting and retention tool. LRAPs typically provide $100 or $200 a month in student loan payments. These payments are counted as taxable income to the employee under current law. Military student aid can provide money for college in exchange for enlisting in the U.S. Armed Forces. You can receive ROTC scholarships for one year before committing to military service.

The Bottom Line

College is more expensive today than it has ever been before so it’s important to understand how you plan on paying for school before deciding to move forward. If you don’t have a financial plan beforehand then you’re more likely to borrow more money than you need and cost yourself quite a bit of money down the road. While college is expensive, preparing financially can be the key to getting the career you want without sacrificing your financial future. 

Frequently Asked Questions (FAQs)

How do most parents pay for college?

The best way for parents to pay for college is to open a 529 savings plan for their child and start saving into it every month. They can also get other people, such as the child’s grandparents, to contribute to these accounts. While parents are still contributing less than half of their kids’ educational expenses, on average, they are still contributing as much as possible. 

How do average parents pay for college?

On average, most parents pay for less than half of their kid’s college education. Students use their own income, scholarships, and loans to help pay for the rest of their schooling. Parents should consider not taking out loans for their kids to go to school because they can hurt their retirement chances. The best thing parents can do is to open a 529 plan and save as early and often as possible. 

How do I pay for college if I have no money? 

Not having enough money to go to college can seem pretty overwhelming but there are steps you can take to lower the total cost and help you afford school. You can get grants, scholarships, and work during school to cut down the costs. You can also go to an affordable school and find ways to cut down on living expenses. There are things anyone can do to go to college if they’re willing to put in the time and effort. 

A good place to start:

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