Identifying a way to pay for college is a challenge for most families so borrowing money is often the only available option. It is surprising to discover that 72.1% of undergraduates taking a degree at a public school pay between $3,000 and $8,999 per annum. Contrarily, 73% of undergraduates attending a private university need to find well over $21,000 per year. The bulk of student loan debt is now due to indirect costs, such as accommodation, books, recreation, food and living expenses.
Paying for College with Student Loans
An absence of disposable income means that the majority of undergraduates are financing a college education with a combination of federal and private student loans. Whilst private funding relies upon credit scoring, approval for federal student loans doesn’t involve a credit check. The rate of interest could be subsidised for low income families who would otherwise find it hard to attend higher education.
- Federal student loans: Subsidized and unsubsidized Stafford and Perkins loans are offered by the federal government to help pay for college. A subsidy will only be provided for a family that passes a means test so only the most hard-up families will be eligible. Parents can also take out a PLUS loan to help their son or daughter.
- Private student loans: Financial institutions lend money to help cover the cost of attending higher education. The borrower will need to have a good credit rating or a willing cosigner (with excellent credit) as lenders always perform credit scoring.
* It is important to appreciate that, although unsecured, student loan debt cannot be eliminated by declaring bankruptcy apart from in exceptional circumstances.
How to Pay for College with a Scholarship
Financing a college education with a scholarship regularly provides a potential option for an undergraduate, but they don’t realise that they are available. Whilst some private companies and federal government programs offer partial college financing, others will cover the full cost. Although students are advised to contact their schools financial aid office, a few possibilities are alluded to below.
- Coca-cola scholarship. Over 600 scholarships are offered each year to individuals displaying academic excellence (at least a 3.0 GPA) and who have assisted their community. Of these, 50 students will receive a $20,000 award and 200 students will receive $10,000.
- The Gates scholarship. Up to 100 people will be able to benefit from an education at the University of Cambridge, England. Tuition costs will be covered and a bursary provided to help with living expenses. A high GPA and genuine leadership qualities will be sought.
- Goldman Sachs global leaders. Subject to a minimum GPA of 3.7, affiliated colleges are invited to nominate 5 to 10 of their best second year graduates. Up to 150 students will be awarded the title of global leader. They’ll also receive an award of $3,000.
Financing a College Education with Federal Grants
Provided a school meets certain requirements, the federal government will provide money to help with the cost of academic tuition fees. Pell grants and Federal Supplemental Educational Opportunity Grants (FSEOG) are by far the most common, but won’t be enough to pay for college entirely. The school’s financial aid office will be able to provide more specific guidance on what assistance may be available.
Tax Credits to Help Pay for University
There are also tax benefits, such as the Hope Scholarship tax credit and Lifetime Learning Credit, that can be used to reduce the cost of university. Subject to income, it may also be possible to reduce tax (form 1040 or 1040A) by up to $2,500 per annum under the current Inland Revenue rules.