How to Pay for College .

How To Pay For College

We recently highlighted the fact that the cost of colleges is increasing with no signs of slowing down. Let’s face it, society and most high schools are pushing young students to go to college — regardless of what their career goals are. Promises of higher paying jobs are just the beginning of the sales pitch. At the same time, these same people are not being educated about the implications of a costly degree. Today we will discuss the different ways you can figure out how to pay for college.

First, let’s understand the bigger picture. A big problem is that starting your career saddled with tens of thousands of dollars in student loans means that recent grads are focused on paying loans instead of saving for retirement. Add on having to help pay for their parents who also didn’t save enough for retirement, and it quickly becomes a financial disaster.

This not only highlights the importance graduating with as little debt as possible, but also making a solid financial plan and budget. In general, we are huge proponents of starting at a community college. Do well enough to transfer into your dream school after a couple of years.

Remember, it’s the name of the institution on the bachelors degree diploma that matters, not where you took the intro courses. This alone could potentially cut your student loans in nearly half.

You Need A Plan

Once you’ve decided to attend college, be thoughtful about your professional plan after graduation. If you study literature because you love to read, take out $50K in loans and then realize most editors don’t have high salaries, you might be setting yourself up for financial misery. Take this into account when deciding where you want to go to college. If you have no clue what you want to do after college, it’s best to study a pre-professional discipline which has high wages and good job prospects (like nursing or computer science).

If you have no interest in going to college, you can also look into a trade school. The military is another option, if you have in interest in serving in the armed forces.

Here’s how to pay for college:

Tax Advantaged Accounts for College Savings

If you are a parent hoping to help your child pay for college you have a few options. As a parent, figuring out how to pay for college is very stressful. Experts recommend being open and honest with your children about your ability to help, if any.

When it comes to paying a child’s college, you can open an Education IRA or a 529 Plan, which both have tax advantages. Two main types of accounts used are Coverdell Education Savings Accounts (ESAs) also known as Education IRAs and 529 plans. ESAs are hindered by a low contribution limit ($2,000 per year in 2018) and no state tax break. 529 Plans have higher contribution limits and many states offer a tax break.

Working Before Arriving And While At College

As a high school or college student, your first line of defense to avoid a huge amount of student loans is to work. Summer jobs during high school can help you save $3,000 toward college expenses. Do this for a few years, while saving in a Roth IRA and you’ve got a decent start. (You can use a Roth IRA to pay for educational expenses penalty free)

Having a job during college is also a great way to beef up your resume. After a year or two of college you can also apply for internships that are closely related to your major, which will give you a leg-up against the competition when it comes to finding a job after graduation. Many internships aren’t paid, but they exist. In fact, we both worked during college and both got full time jobs after college because of it. Camilo was offered a full time job at an investment bank where he did paid summer internships and Francisco got a full time job in the same department where he worked as a student. This job also helped Francisco get into his top choice medical school!

Worried you won’t have time to study and work during the semester? Here’s a ProTip: Look for a job at the school library. You’ll have ample time to study / read while working at the desk there.

Grants and Scholarships

Grants and scholarships are an awesome way to pay for college. Tuition grants can come from a variety of sources, but are usually distributed by a school’s financial aid office based on the information you provided when filling out the FAFSA (financial aid application). Grants are awesome because they do not have to be paid back. It’s like a loan that someone else (like the government) pays for you to go to school.

Camilo attended the University of Pennsylvania, which offers an incredible financial program for students who come from lower income households. Camilo easily qualified which meant he graduated from college with only $5K in student loans even though the annual cost was closer to $50,000. This is only typical for elite schools, but it’s good to be aware of it.

Scholarships can also come from a variety of sources (philanthropic organizations, private benefactors, or universities themselves). In order to qualify for a scholarship you typically need stellar grades or a special skill (athletics, music, dance, etc.). For most of us that are not Division 1 caliber athletes, the best way to get a scholarship is to study hard and get awesome grades (shoot for mostly A’s). If you are still in high school, apply to as many scholarships as you can. Even if you are already in college, you can apply and win new scholarships. Scholarships have a low acceptance rate so you’ll need to apply to tons of them to get a few. A few thousand dollars will be worth your time. Like grants, most scholarships do not have to be paid back. Who does not love free money?

Student Loans

After working and receiving grants and scholarships, the last way to pay for school is loans. You need to be very careful when it comes to student loans. They are very easy to receive but very hard to pay back. We think that anyone taking on more than $5K per year in student loans or $20K for an undergraduate degree should think carefully signing the paperwork. What is the track record for this degree program when it comes to placing graduates in jobs? What are the starting salaries? Do you know what % of grads have jobs within 3 months of graduation? These are just a few of the questions you need to know the answer to when choosing a school and program, especially if you’ll be taking out loans to study there.

Loans can be obtained from banks or from the government (federal or state) to cover school expenses.

Private Student Loans

Private loans may have lower or higher interest rates than federal loans, but you almost always need a cosigner. This is someone who would be responsible for the loan if you are unable to pay. If you are like us, this was not an option because we did not have anyone who would qualify as a cosigner. Private loans may have fixed or variable interest rates so that is something else to look out for.

Government or Federal Student Loans

We live in a country (USA) where the government is willing to loan money to students regardless of their current ability to pay. We also live in the country with the highest average cost for a college education, which means it’s easy to go into HUGE amounts of student loan debt.

Government loans are what allowed Francisco to borrow hundreds of thousands of dollars to cover medical school expenses. That would not be the case in most countries around the world (though our tuitions are dramatically higher than the rest of the world).There are a couple things that make the government student loans different from other types of loans. One is that there are different flavors of loans they offer. The two main categories are subsidized and unsubsidized. As you know, loans accumulate interest, so you end up paying back more money than you initially borrowed. With subsidized loans, you will not accumulate interest as long as you are a full time student. This is great because if you take out a $5,000 student loan during your first year of school, the balance will still be $5K at graduation! No interest accumulated during the 4 years you were in college!

Unsubsidized loans on the other hand do accumulate interest during school, but you do not have to start paying the loan back until after graduation. This is also different from private loans, which you usually need to start paying back right away after the money is borrowed.

Summary

As you can see, knowing how to pay for college requires thought and planning. Most Americans will use a combination of most of the methods discussed above. Just like we did. If your parents are able to fully pay for your college education and you don’t have to use any of the above methods please thank them a lot. If you are a parent looking for ways to save for your child’s education, you’re a star. That is a very kind and generous gift!

The most important thing to remember is that with price of universities continually rising, you need to be very thoughtful about where, why and when you decide to go to college. The decisions you make as a 17 or 18 year old can have a lasting financial impact.

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