12.7: Paying for College
Paying for college
As you progress through your college experience, the cost of college can add up rapidly. Worse, your anxiety about the cost of college may rise faster as you hear about the rising costs of college and horror stories regarding the “student loan crisis.” It is important to remember that you are in control of your choices and the cost of your college experience, and you do not have to be a sad statistic.
Education Choices
| Sample College Costs | |||
|---|---|---|---|
| Type of School | Annual Tuition without Housing | Tuition If Living on Campus | Total Cost at Planned Completion |
| Community College (2 yr.) | $3,726 | Live at Home | $7,452 |
| Public University, In State (4 yr.) | $9,716 | Live at Home | $38,864 |
| Public University, In State (4 yr.) | $19,716 | $78,864 | |
| Public University, Out of State (4 yr.) | $21,629 | $31,629 | $126,516 |
| Private College (4 yr.) | $35,676 | $45,676 | $182,704 |
Key to Success: Matching Student Debt to Postgraduation Income
Figure 12.11: Each field of employment brings with it an average income and assumed debt. This graph shows the impact of an attorney’s income versus debt, and then compares a teacher who took a $100,000 loan with one who took a $30,000 loan. Note the teacher’s income is the same in both cases. (Credit: Based on information from National Association of Colleges and Employers and US Bureau of Labor Statistics.)Research Your Starting Salary
Undergraduate Degree: 1 x Annual Salary
Advanced Degrees: 1–2 x Annual Salary
Scholarships
Thinking about applying for scholarships can seem like an overwhelming prospect, and students have many excuses for not applying. There are so many scholarships available for college that knowing where to start is the first obstacle to the process. Remember, scholarships are the gift of money for college. A gift does not have to be paid back like a loan does.
Scholarships are offered to students who meet a specific requirement established by the sponsor, who may be an individual or an organization. Scholarships can be offered through local, state, or national sponsors. Each scholarship will have its own requirements based on the purpose of the scholarship. Scholarships are a good way to help pay for college without increasing student debt. Students may apply for multiple scholarships. Receiving a scholarship will affect the student’s overall financial aid award because all the student aid added together cannot be more than the cost of attending college. However, it is important to realize that scholarships are gifts and do not have to be repaid, so trying to include a scholarship in your overall financial aid package is a good idea.
Common Excuses For Not Applying For Scholarships
- Scholarships are only for people with good grades or athletic skills.
- There aren’t scholarships for someone like me.
- You have to be a good essay writer to win a scholarship.
- There is too much competition to even try.
- Finding scholarships to apply for is hard and takes too much time.
- Scholarship awards are for small amounts of money, so it’s not worth it.
- Scholarships are only for recent high school graduates.
- GED graduates can’t get scholarships.
Finding scholarships requires research and effort on the part of the student, but the effort can have a financially rewarding outcome. Searching for scholarships today is much easier than in the past. Students used to have to comb through books in counselors’ offices and photocopy applications to be put in the mail, snail mail!
The Internet has changed the search process. In today’s scholarship search process, a student can use several websites to help find the treasure. Never pay for help to search for scholarships. Websites that charge fees to find scholarships may be scams. The Scholarship Fraud Prevention Act of 2000 was passed to help increase the penalties for people convicted of scholarship fraud . Before this Act was passed, the Federal Trade Commission was limited to closing operations defrauding consumers. Now the government has the power to incarcerate or fine perpetrators of scholarship fraud.
Free help can be found through the college you have selected to attend as well as through several great websites. Check with student support services at your college to see what services are offered. Scholarship Junkies , Unigo, Fastweb , and Fin Aid are examples of online resources for finding scholarships to apply for. Unigo even has a section for scholarships that don’t require an essay.
Lists of Nursing Scholarships
Mistakes to avoid when applying for college scholarships
Scholarship committees want to give their money away to deserving students. It’s your job to properly sell yourself so they know why you are the right choice. Build a profile that can’t be ignored, one that showcases your originality, your character, and your drive to be successful. Avoid these common mistakes students make. Get your application done right!
- Deadlines – don’t miss them! Note the date, time, and time zone of the deadline.
- Fill out the application carefully – don’t be careless!
- Fill out the application completely – incomplete applications are often rejected.
- Double-check eligibility – if you aren’t eligible, move on to another scholarship.
- Proofread – both your application as well as the essay or personal statement.
Your attention to detail during the scholarship application process can save you time and money later.
Financial Aid
Financial Aid Basics
Mo st students will need some form of financial aid to help pay for college. Before accepting an offer of assistance, it is important for a student to understand what each possible offer means and what the student’s responsibility will be after accepting the offer. The Office of the US Department of Education offers financial assistance to students in the form of grants, loans, and work-study programs. Filling out the FAFSA application is the first start towards receiving financial aid for college.
Understanding interest rates and how they impact student loans is essential. Many students shy away from doing the math to understand what their responsibility will be in repaying a loan. It is also essential that students understand the difference between a subsidized and unsubsidized loan . Both types of loans may be offered to a student in an award letter for financial aid. Many of the horror stories about the burden of college debt on students when they graduate from college could be avoided if students better understood options for financing their college education and examined their college selection process in greater detail.
There is a difference between a flat/annual interest rate and a compound interest rate. Compound interest can make you very happy as an investor, but it works against you as a borrower. Subsidized loans do not add interest while a student is attending college. The interest is not compounded while the student is attending college. Unsubsidized loans begin charging interest as soon as you take out the loan as a car loan would.
The key difference between unsubsidized and subsidized loans is the amount of debt a student will leave college owing. Unsubsidized loans charge students interest while they are attending college, so the interest is growing on the loan during that time. A student might think they are borrowing $4,000.00 or $6,000.00, but unsubsidized loans add interest to the amount borrowed that adds up over time. Subsidized loans do not add interest while the student is attending college, so $4000.00 really is $4,000.00, no extras added.
Another important thing to remember when borrowing money for college is that if you add the cost of books and supplies or other needs onto the loan you have taken on for tuition, and you have unsubsidized loans, that extra money also grows over time with interest.
Loan Calculator
Students need to remember that they are consumers when it comes to taking on loans for college. Not thinking about what the debt means after college only compounds the issues. It is important to think about how much could you afford to pay monthly on a student loan once you have completed college. It’s easy to do the math on loan costs. The Smart Student’s Guide to Financial Aid has a free loan calculator that will do the work for you. All you have to do is plug in the numbers. The loan calculator will also give you an estimate of what your annual salary will need to be able to repay the loan. Of course, the loan calculator will not know your other financial commitments, so be sure to look at the monthly payment and decide if you can afford that additional expense. College debt is considered a partial economic hardship if it requires you to use more than 15% of your discretionary income.
Repayment
It is also important to realize that even if you don’t finish college, you will have to repay a loan taken out for college. According to an article titled The Feds Don’t Care If You Dropped Out of College. They Want Their Money , students who dropped out of college and ultimately didn’t obtain a degree or certificate, generally don’t earn higher wages after leaving school. Statistics show that students who start college but don’t finish struggle with student debt.
The US government backs loans that are taken out through FAFSA/Federal Student Aid. Repayment is expected. The government has the authority to garnish wages and withhold tax returns as part of the repayment of loans that are not paid. Government-backed debt cannot be forgiven in bankruptcy, except under rare circumstances.
The cost of going to college seems to be constantly increasing. Understanding the opportunity cost both now and in the future needs to be an important part of a student’s decision process when selecting a college and a major. Do the math! There are plenty of resources to help you. Follow your dreams, but be informed.
Financial aid vocabulary is a specialized language that students participating in the process must understand.
Common Financial Aid Vocabulary Definitions
| Terminology | Definition |
|---|---|
| Award package | The way colleges and universities deliver their news about student eligibility for financial aid or grants. The most common packages include Pell Grants, Stafford Loans, and Work-Study. |
| Borrower | A person or group that obtains funds from a lender for a particular period of time. A borrower signs a “promissory note” as evidence of indebtedness. |
| Campus-Based Financial Aid Programs | The three major aid programs are funded by the federal government, but the disposition of the funds is handled by colleges’ financial aid offices. The aid programs are the Federal Supplemental Educational Opportunity Grant, the Federal Perkins Loan, and Federal Work-Study (FWS). |
| Cost of education | This includes tuition and fees, room and board, books and supplies, transportation, and miscellaneous expenses. A student’s financial aid eligibility is the difference between the cost of education and the Expected Family Contribution as computed by the federal government using the FAFSA. |
| Default | A failure to meet a financial obligation, especially a failure to make a payment on a loan. Defaults are recorded on permanent credit records and may result in prosecution and/or loss of future borrowing possibilities. |
| Dependent Student | A student claimed as a dependent member of the household for federal income tax purposes. |
| Expected Family Contribution (EFC) | The amount of financial support a family is expected to contribute toward a child’s college education. This amount is part of the formula used by the federal government to determine financial aid eligibility using the FAFSA form. |
| Federal Direct Loan | A group of federal loan programs for which the lender is the federal government. Included in these programs are government-subsidized loans for students and unsubsidized loans for both students and parents. |
| Federal Pell Grant Program | This is a federally sponsored and administered program that provides grants based on needs to undergraduate students. Congress annually sets the appropriation; amounts range from approximately $400 to $3,000 annually. This is “free” money because it does not need to be repaid. |
| Federal PLUS Loan | A nonsubsidized loan program for parents of undergraduate students under the Federal Education Loan Program umbrella |
| Federal Perkins Loan Program | A federally run program based on need and administered by a college’s financial aid office. This program offers low-interest loans for undergraduate study. Repayment does not begin until a student graduates. |
| Federal Stafford Loan | A federal program based on need allows a student to borrow money for educational expenses directly from banks and other lending institutions (sometimes from the colleges themselves). These loans may be either subsidized or unsubsidized. Repayment begins six months after a student’s course load drops to less than halftime. Currently, the interest rate is 0 percent while in school and then is variable up to 8.25 percent. The loan is typically repaid within ten years. Be sure to know the interest rate at the time of borrowing. |
| Federal Work-Study Program (FSW) | A federally financed program that arranges for students to combine employment and college study; the employment may be an integral part of the academic program (as in cooperative education or internships) or simply a means of paying for college. |
| Financial Aid Award Letter | Written notification to an applicant from a college that details how much and which types of financial aid are being offered if the applicant enrolls. |
| Financial Aid Package | The total amount of financial aid a student receives for a year of study. |
| Free Application for Federal Student Aid (FAFSA) | This is the federal government’s instrument for calculating need-based aid. It is available from high school guidance departments, college financial aid offices, and the Internet ( www.fafsa.ed.gov ). The form should be completed and mailed as soon after January 2 as possible. |
| Gap | The difference between the amount of a financial aid package and the cost of attending a college or university. The student and his/her family are expected to fill the gap. |
| Gift Aid | Grant and scholarship money are given as financial aid that does not have to be repaid. |
| Grants/scholarships | These are financial awards that are usually dispensed by the financial aid offices of colleges and universities. The awards may be need- or merit-based. Most are need-based. Merit-based awards may be awarded on the basis of excellence in academics, leadership, volunteerism, athletic ability, or special talent. |
| Lender | One who provides money on the condition that the money is returned, usually with an interest charge. |
| Merit awards, merit-based scholarships | More “free” money, these awards are based on excellence in academics, leadership, volunteerism, athletic ability, and other areas determined by the granting organization, which can be a college or university, an organization, or an individual. They are not based on financial needs. |
| PIN | Personal identification number. |
| Student Aid Report (SAR) | Report of the government’s review of a student’s FAFSA. The SAR is sent to the student and released electronically to the schools that the student listed. The SAR does not supply a real money figure for aid but indicates whether the student is eligible. |
| Subsidized Student Loan | The government is paying the interest on the loan while the student is in college at least part-time (six credits). |
| Tuition | Amount of money charged to students for instructional services. Tuition may be charged per term, per course, or per credit. |
| Unsubsidized Student Loan | The interest is accruing while the student is in college. The government is not paying the interest on the loan. |
Activity: Voices of debt: the student loan crisis
Voices of Debt: The Student Loan Crisis
Watch the following video, and write a one-minute paper with your reflections and thoughts related to student debt.
Video: Voices of Debt: The Student Loan Crisis – Don’t Major in Debt
“An investment in knowledge always pays the best interest.”