Paying for College: A Financial-Wellness Approach

How do I pay for college? 

This is the No.1 question for a student (and often their family) as they navigate one of the most important decisions of their life. 

Financing higher education is not only critical but also complex. Scholarships and loans have their own set of rules, guidelines, and, of course, paperwork. With the cost of living on the rise, college costs follow, making the issue of financing all the more important. In this article, we’ll explore the pros, cons, and everything between — helping students and families make an informed decision with financial wellness in mind. 

The Lowdown on Student Loans

Student loans provide funding for higher education and related costs with the expectation of repayment after graduation. There are two main types:

  • Federal loans (Direct Subsidized, Direct Unsubsidized, PLUS)
  • Private loans (banks, credit unions, and online lenders)

Loans are the standard funding source. According to the National Center for Education Statistics, 28.6% of undergraduates in the United States received federal student loans in 2023. With subsidized loans, the government pays the interest while you’re in school or during deferment periods. Unsubsidized loans, on the other hand, begin accruing interest while you’re in school, so be prepared to pay interest as you go. In both cases, interest is generally low, although it can build up to a significant amount over a long period. 

PLUS loans (Parent Loans for Undergraduate Students) are credit-based government loans available to parents of dependent undergraduate students (also available to graduate students). The loans can cover up to the full cost of attendance minus other financial aid received, but they typically carry higher interest rates and origination fees than Direct Subsidized and Unsubsidized loans. Private loans constitute a small portion of student debt (~7.2% in 20231), likely due to their high interest rates. 

There are two big pros for federal loans: accessibility and predictability. Most students who apply for federal loans receive them, and the application process (“the FAFSA” form, short for Free Application For Federal Student Aid) is straightforward. Loans provide financial support that can cover everything from tuition to living expenses.

The significant drawback is the long-term financial impact. The average bachelor’s degree graduate leaves school with $35,530 in loan debt2, which can take 10-25 years to repay. This debt can complicate or prohibit major milestones and goals, like homeownership, retirement savings, or starting a family.

College Scholarships — Who’s Eligible? 

Scholarships are the golden ticket of educational funding: money awarded that doesn’t need to be repaid. These merit or need-based awards come from various sources:

  • Institutional scholarships offered directly by colleges and universities
  • Private scholarships from corporations, foundations, and community organizations
  • Government scholarships at federal, state, and local levels

The most obvious advantage of scholarships is that they reduce educational costs without creating future financial obligations. However, scholarships require some serious hurdle-jumping. They’re competitive, often require extensive applications, and may have specific eligibility requirements or ongoing criteria to maintain funding. The biggest hurdle: The vast majority of scholarships only cover a portion of educational expenses, leaving some pretty large financial gaps to cover. 

How to Fund Your College Education

Who’s a Candidate for Scholarships? 

Anyone. These are the main areas for scholarship awards:

  • High academic achievement 
  • Participation and leadership roles in clubs, community service, or other organized activities 
  • Artistic ability (music, theater, visual arts) 
  • Athletic achievement 

Who Should Apply for Loans?

Student loans are a practical route in these scenarios:

  • Scholarship funding falls short of covering your educational expenses.
  • You’re pursuing a degree with strong employment prospects and salary potential.
  • Your career path is in public service (teaching, government, nonprofit work), which may offer forgiveness options after a certain number of qualifying payments. 
  • You’re already employed but need additional credentials for promotion or salary increases; some employers offer tuition reimbursement.

Creating a Funding Plan

For every student, the goal is to leave college with a degree and the least amount of debt possible. Being proactive is key, and it starts with a plan. 

  1. Maximize free money first: Don’t skip looking for scholarships. Even if you don’t qualify for bigger awards, you might find support  from institutional awards to small local opportunities that may have less competition.
  2. Consider cost in school selection: A generous scholarship at a moderately priced school may be more valuable than minimal aid at an expensive one.
  3. Use federal loans before private options: Federal loans offer more favorable terms, forgiveness options, and income-driven repayment plans.
  4. Explore work-study and part-time employment: Working while studying can reduce the need for loans.
  5. Borrow only what you need: Resist the temptation to borrow the maximum available if your actual expenses are lower.

The Path Forward

College is an exciting time in a young person’s life. Those four years (or more for graduate degrees) open up a world of possibilities. Before beginning this adventure, every student, perhaps with the help of loved ones, should take the time to weigh costs —  like tuition, room, board, and extras — against funding options and then figure out the most practical path forward. The goal is to graduate without the heavy burden of high student loan debt. While student debt is nearly impossible to avoid altogether, financially sound decisions can whittle it down to a manageable amount. Planning in the present helps build a brighter future with less financial stress. 

  1. https://educationdata.org/student-loan-debt-statistics
  2. https://educationdata.org/average-debt-for-a-bachelors-degree

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