How to pay for college can be a major concern for students and parents alike. Luckily, government agencies in the United States understand the impact that an educated workforce can have on the overall economy. Therefore, the United States Department of Education works in conjunction with colleges and universities across the country to offer opportunities for financial assistance through a diverse range of grants, scholarships and subsidized loans to students who meet a variety of qualifying criteria. In addition to financial aid, the federal government also has options for long-term savings through tuition tax benefits, as well as tax-free savings accounts for education.
What Financial Aid and College Savings Opportunities Are Right for You?
If you are looking to learn how to make college affordable, read through this resource. You’ll find descriptions about these different types of financial aid and other ways to pay for college.
- College Grants
- College Scholarships
- Work-Study Programs
- Federal Student Loans
- Applying for Grants, Scholarships and Student Loans
- Tips on Paying Back Student Loans
- Tax Deductions Savings Programs
- Tax Breaks, Credits and Deductions for College Students
- Financial Aid Options for Military Service Members and Veterans
- Financial Aid for International Students
Who Is Eligible for Financial Aid in the United States?
Citizens or permanent residents of the United States who enroll at least part-time in an accredited degree program may qualify for some form of financial aid.
Students from low-income families typically qualify for most government financial aid assistance programs. In addition to federal grants, low-income students can generally qualify for federal loans. Many colleges and universities also aim to assist low-income students by providing institutional aid.
Students from middle-class families may qualify for federal loans, too The federal government can either lend money directly to students or facilitate a loan guarantee with a private lender. A PLUS loan program can also be available for parents of dependent students and graduate and professional students.
Grants for College Students
College grants are typically awarded by the federal government, state education agencies and educational institutions. Grants can be used to pay tuition and fees, room and board, books and supplies, and other educational expenses. Unlike loans, grants do not have to be repaid as long as you meet grant requirements.
Federal Pell Grants
Many American undergraduate students can qualify for these funds. Pell Grants of up to $6,195 (for the 2019-20 academic year) are administered directly by colleges and universities through their centralized financial aid offices. When extending offers of student aid to incoming undergraduates, a financial aid officer usually takes a student’s savings and other financial resources into consideration. Though every student may not get the maximum amount allowed by Congress, many students can have the opportunity to reduce the amount of their student loans by accepting Pell Grants that do not have to be paid back.
Federal Supplemental Educational Opportunity Grants
These funds may be available to students who are facing significant financial hardship. Financial aid officers receive a pool of emergency funds each year that Congress has earmarked for use in extreme circumstances. To earn additional grants of up to $4,000, a prospective student must show that even the maximum combination of loans, Pell Grants, and work-study placements still leaves a shortfall for college expenses.
Many students can reduce the amount of their student loans by accepting Pell Grants that do not have to be paid back.
Scholarships for College Students
Scholarships are generally administered by schools or private organizations. College scholarships are usually contingent upon qualifying criteria such as:
- Academic achievement
- Athletic prowess
- Artistic talent
- Participation in a community program
- Military service
- Financial need
Like grants, scholarships do not have to be repaid as long as you continue to meet the scholarship requirements; some awards also carry additional obligations. For instance, scholarship winners may be required to volunteer time for a community organization, pledge to work in a specific geographic area or maintain a specific enrollment status or GPA.
Here are a few of the different types of scholarships you may be able to earn:
Most colleges and universities maintain their own financial resources for student financial aid, allowing them to grant awards to qualified applicants. A number of public charities and private foundations also operate their own need-based scholarship programs for students who meet specific requirements. For example, some foundations award scholarships and grants to qualified working parents who want to return to school and finish their original degree programs. Other organizations can reward students who intend to pursue a specific profession, such as teaching or science.
In many of these cases, you must demonstrate your need to bridge the gap between other sources of financial aid and the total cost of attending your chosen institution. In addition, you may also be required to commit to completing your degree program on time and achieve specific academic goals.
Most merit-based scholarships are administered by college financial aid departments based on criteria established by wealthy donors or other funding sources. In some cases, family and friends of a deceased alumnus establish a scholarship that can be given to a student who reflects the ideals of their loved one. Financial aid officers and faculty members typically nominate returning students for these awards, or admissions counselors may recommend that money go to a prospective first-year student who shows promise.
Throughout the United States many businesses, charities and community organizations host scholarship competitions. Often these competitions require students to write essays or submit other qualifying material to earn additional money for college. Frequently, local groups that want to use their financial resources to assist students from their region sponsor these competitions.
Our partner site, Schools.com, has a searchable scholarship database. You can use the filters to see what might be available by location, area of study, etc.
College scholarships do not need to be repaid as long as you meet the scholarship requirements.
If you’re from an underrepresented group, you may also be eligible to receive scholarships.
College Work-Study Programs
The work-study program is funded by the federal government and administered by the educational institution. If you are awarded work-study, you are encouraged to work in a community service job or in a job related to your major. Participating in a work-study program can be another way to make college more affordable.
Federal Student Loans
A student loan may be your first encounter with major debt, and when used responsibly, student loans can help build a positive credit history. Eligible student loans can also offer some tax benefits to you after graduation because you can claim the interest paid on your student loan debt. Federal student loans offer greater protections and often lower fixed interest rates than private loans, so it’s a good idea to exhaust your federal loan options before taking out private loans.
Sallie Mae is a leading national provider of higher education loans for students and parents. Established in 1982, Sallie Mae provides federal loans under the Federal Family Education Loan Program (Stafford and PLUS Loans) and privately funded loans for students and families.
Subsidized Stafford Loans
The United States Department of Education administers Stafford loans. These are subsidized loans which can be available to you if you demonstrate financial need. If you receive this type of loan, the government pays for your interest while you’re enrolled at least half-time in a degree program. Because interest compounds over time, these modest federal subsidies can shave thousands of dollars off interest charges over the life of the loan. The government stops making interest payments to the lender six months after you graduate or leave school. At that time, you must begin making monthly payments of both interest (the cost of borrowing) and principal (the money borrowed).
Unsubsidized Stafford Loans
If you still have expenses after applying for a subsidized Stafford Loan or if you do not demonstrate financial need, you may be eligible for an unsubsidized Stafford Loan. With an unsubsidized loan, you can defer payments while you are enrolled in school, but interest does accrue during this time. If you borrow an unsubsidized Stafford Loan, you can choose to make interest payments while you are in school.
Student PLUS Loans for Parents, Graduates and Professionals
Parents of dependent students and graduate and professional students can borrow from the PLUS loan program. Parents can borrow any amount of money to cover the difference between other financial aid and the total cost of attending college. Applicants who have an adverse credit history may still be able to receive a loan by documenting extenuating circumstances or obtaining a cosigner.
To apply for a PLUS loan, parents of dependent students are encouraged to file a Free Application for Federal Student Aid (FAFSA); graduate and professional students are required to file one.
Education loans need to be repaid.
Applying for Grants, Scholarships and Student Loans
In the United States, requests for federal grants, most private scholarships, and federal loans require you to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA, available in web-based or paper form, simplifies the financial aid process for you and for financial aid counselors. Colleges and universities use the form to fairly and evenly evaluate your needs.
Smaller community grants and scholarship competitions may require you to complete additional forms or submit essays. You should request application forms as far in advance as possible.
Parent PLUS Loans require that an application be completed by your parents. Admissions counselors recommend that you wait to apply for PLUS Loans until after you receive an offer of admission and a financial aid package from your chosen school. This way, your parents can apply only for the difference between your financial aid package and your expected cost of attendance.
Complete the forms and follow the instructions carefully. Be sure to return the paperwork as early as possible. Since many grant programs disburse money on a rolling basis, you might disqualify yourself by waiting until the posted deadline to submit your material.
To complete the FAFSA, gather the following documents:
- Your Social Security Card
- W-2 forms from work conducted during the previous calendar year
- Current pay stubs from employers for whom you presently work
- Any other receipts or records of income earned this year or last year
- Your previous year’s income tax return. If you are married, include your spouse’s return
- Your parents’ previous year’s income tax returns, if you are a dependent
- Your bank statements from this year and last year
- Records of any current investments or business holdings
Make photocopies of all your documentation and store them in a secure file along with a printout or a photocopy of your completed FAFSA. You may need to reference this information quickly if you are required to verify it.
What Happens When You Fall Behind on Student Loan Payments?
It’s a serious matter and can have numerous negative consequences. Falling behind or failing to repay a student loan can:
- Reduce your credit score
- Make it more difficult and expensive to qualify for other loans or credit cards.
- Disqualify you from receiving federal aid or federal loan repayment programs
- Result in the garnishment of your wages or bank account Exclude you from government hiring processes, as well as schools and law enforcement agencies
- Cause your job application to be rejected, as many private employers may reject applicants with a defaulted student loan on their records
How Do You Pay Back Student Loans?
Here are a few options to help students who are finding it hard to pay back their loans:
Student Loan Forbearance
The Department of Education can offer significant relief to student loan recipients who, through no fault of their own, cannot meet their regular monthly payments. You may also be eligible for forbearance on your federal student loans, which can allow you to temporarily postpone or reduce payments. You may be granted forbearance for unemployment, partial disability, or some other hardship. By law, you can request up to twelve months of “forbearance” by simply contacting your lender and completing a simple form. During the forbearance period, you can skip your student loan payments while you work on getting a new job or putting your financial house in order.
Consolidating Your Loan
Like a homeowner who refinances a mortgage, you can refinance or consolidate your student loans to lower your monthly payment or combine several loan payments into a single monthly payment. Keep in mind however, that consolidation loans use a weighted average interest rate, which may lower the interest rates on some of your loans and increase the interest rates on others. Also, if you extend your repayment period, you may end up paying more interest in the long run.
Student Loan Deferment
A student loan deferment can allow you to make no payments for a specific period of time. Unlike student forbearance, interest charges on subsidized federal student loans may be deferred, but only the principal can be deferred on unsubsidized and PLUS loans.
For example, if you choose to continue your studies by enrolling in a campus-based or online degree program, you may qualify for a deferment if that school is eligible to disburse federal financial aid. Other situations that might qualify you for a deferment include:
- Economic hardship
- Inability to find full-time employment
- A disability
- Family-related issues such as maternity leave
- Service in the military, Peace Corps or public health sector
Student Loan Forgiveness
You may earn full forgiveness (cancellation) of your student loan by participating in a number of state or federal loan forgiveness programs. For example, education majors can often have their loan slate wiped clean after teaching in underserved areas for five years. Depending on your area of study, your college or university should be able to inform you about specific opportunities to cancel out your student loan debt while earning valuable career experience.
Loan Repayment Programs
If you haven’t graduated yet, but are concerned about repaying federal student loans, ask your lender about income-based repayment plans. If you work in a low-paying job, you may qualify for this program, which caps monthly payments at a percentage of your discretionary income.
Enlisting in the military could help pay off federal student loans such as Stafford, PLUS and consolidation loans. Only certain military occupational specialties can qualify for the loan repayment program, and the amount of the benefit depends on your branch of the military. To qualify, however, none of the loans can be in default and loans must have been taken out before joining the military (or reenlisting). If you work in the healthcare field, you could be eligible for the Health Professionals Loan Repayment Program.
Saving for College: Savings Programs
If you’re concerned about how to make college affordable for yourself or your children or other family members — not immediately, but at some time in the future — planning ahead can make a huge difference. Understanding how to use a combination of scholarships, student loans, college savings plans and tax breaks can help you make an informed decision about paying for college.
Parents can help with the cost of a college education by setting up savings plans well before their kids leave high school. Not everyone has the same financial aid needs, however, so it’s important to choose a college savings plan that is right for you and your family. Here is a rundown of some college savings plans that can help you handle education costs.
Qualified Tuition Program or 529 Plans
Qualified Tuition Programs (also called 529 savings plans) can allow a parent or other relative to save for a student’s qualified education expenses. These expenses can include not just tuition but also computer software used for studying, room and board costs (assuming you’re enrolled at least half-time), textbooks, supplies and other equipment.
If the money in a 529 plan is not used for undergraduate studies, the beneficiary can later use it for graduate study or change the beneficiary to another family member who can use it for qualified educational expenses. Otherwise, if you withdraw money from a 529 and don’t spend it on eligible expenses, you may owe income taxes on that money.
Coverdell Education Savings Account (ESA)
Money saved and interest earned in a Coverdell (ESA) can be used for eligible education expenses. Unlike a 529 plan, which can only be used to fund college tuition and expenses, Coverdell ESAs can also be used to fund the costs of pre-college education.
If a student winds up not needing some of the funds in an ESA, you can change the beneficiary to another relative. Contributions are not tax-deductible, but the funds grow tax free and distributions are not taxed when they’re used to pay for qualified educational expenses.
Education Savings Bond Program
Interest earned on qualifying U.S. savings bonds (series EE or series I) may not be taxable if it is used to pay qualified education expenses, so this is another potential college savings vehicle. However, you may not qualify for this deduction if your income exceeds certain thresholds.
Individual Retirement Account
Rather than saving in an ESA or 529 plan and paying taxes if the money is not needed for college and there are no other beneficiary options, some people set aside money in an Individual Retirement Account (IRA). If you don’t use the money for college, you’d just keep saving it for retirement.
Tax Breaks, Credits and Deductions for College Students
You or your parents (if you are a dependent student) may qualify for one of these tax benefits. Be sure to consult the IRS publication 970, Tax Benefits for Higher Education, for detailed information. A consultation with a qualified tax preparer can also help you maximize tax benefits for education.
A tax deduction can reduce the amount of income subject to tax (and based on your tax bracket, you may owe less in taxes), but a tax credit can directly reduce the amount of income tax you may have to pay, so credits (if you qualify for them) are generally more valuable than deductions.
American Opportunity Tax Credit
You may be able to claim a credit of up to $2,500 for adjusted qualified education expenses paid for each qualifying student. Forty percent of this credit may be refundable, which means if this portion exceeds your tax liability, you are likely to get the excess as a refund. The credit is only available for four tax years for each eligible student under certain stipulations.
Lifetime Learning Credit
Independent students and parents of dependent students may be able to claim a tax credit of up to $2,000 per return for qualified educational expenses for an unlimited number of years of postsecondary education or for coursework to obtain or improve job skills. The qualifying student does not have to be enrolled in a degree or credential program, and individual courses qualify.
Tuition and Fees Deduction
Independent students and parents of dependent students may be able to deduct up to $4,000 in qualified tuition and fee charges from their taxable income in each tax year. Because this deduction is claimed as an adjustment to income, you can take this deduction even if you don’t itemize deductions on your tax return. This is a good option if you don’t qualify for one of the credits explained above.
Student Loan Interest Deduction
Up to $2,500 per year may be deducted in interest paid on student education loans by independent students, a spouse, or parents of dependent students. The student loan must have been taken out solely to pay qualified educational expenses and the loan cannot be from a relative or made through a qualified employer plan.
Financial Aid Options for Military Service Members and Veterans
The information below is not affiliated with the U.S. government, U.S. Armed Forces or Department of Veteran Affairs, but can offer helpful information on financial aid, scholarships and other types of assistance to military members and veterans who want to further their education. If you plan to earn a college degree while serving in the military or when you return to civilian life, here’s a look at options for military financial aid or financial aid for veterans that may help you pay for your studies.
In addition to the programs described below, the Reserve Educational Assistance Program (REAP), Yellow Ribbon Program and Iraq & Afghanistan Service Grants, can be available if you meet the qualifying criteria. Because there are a variety of benefits and aid programs military members may be eligible for, it’s a good idea to discuss your options with an education service officer who can guide you with possible funding sources for your specific situation.
To qualify for some of these programs, you’ll need to file a FASFA.
Montgomery GI Bill
The GI Bill can offer an education benefit for veterans and active-duty soldiers who meet qualifying criteria for eligibility. You may be able to use this aid for college, technical or vocational courses, apprenticeship/job training or other qualifying options.
Post-9/11 GI Bill
For service members with at least 90 days of aggregate active duty service after Sept. 10, 2001, and those who are still on active duty, may be eligible for the Post-9/11 GI Bill. Honorably discharged veterans or those who were discharged with a service-connected disability after 30 days may also be eligible for this VA-administered program.
Veterans Educational Assistance Program
Federal aid can be available for older service members who make contributions from their pay through the Veterans Educational Assistance Program (VEAP). Certain stipulations apply. Depending on the amount of your contributions, you may be able to receive benefits for up to 36 months.
Financial Aid for International Students
If you want to pursue higher education in the U.S., but you aren’t a U.S. citizen and you’re wondering how to pay for college, keep in mind that the United States government does not offer college funding to students from foreign countries. Likewise, immigration and travel restrictions can make it difficult to qualify for employment during your stay in the U.S.
Therefore, you must plan ahead and find resourceful ways to fund your education,. Most students who locate financial aid for a degree program in the United States find it through one or more of these sources:
- Private sponsors. Throughout the world, wealthy individuals often sponsor promising students from their communities with the hope that their beneficiary brings the knowledge and the perspective gained from international study back home where they can help fellow citizens.
- International scholarship programs. Many private foundations and charitable organizations sponsor scholarship competitions to help advance their cause or expand their profession.
- Foreign exchange programs. Most international students who attend school in the United States arrange their degree program through a local exchange program or an international student exchange organization like the Council for International Education Exchange.
Non-citizens of the U.S. are only eligible for federal financial aid in certain circumstances. For instance, you can be eligible if you are a U.S. permanent resident holding a green card or if you were granted asylum in the United States. Refer to the Federal Student Aid website for more specific information on non-U.S. citizen eligibility for federal aid. If you believe you may be eligible for federal aid, you’ll need to fill out the FAFSA.
With a little detective work, students can ways to pay for college through a combination of difference funding resources.
- Coverdell Education Savings Account (ESA), https://www.irs.gov/publications/p970/ch07, accessed September 2019
- Education Exception to Additional Tax on Early IRA Distributions, https://www.irs.gov/publications/p970/ch09, accessed September 2019
- Federal Student Aid, An Office of the U.S. Department of Education, https://studentaid.ed.gov/sa/, accessed December 2019
- Iraq and Afghanistan Service Grants, https://studentaid.ed.gov/sa/types/grants-scholarships/iraq-afghanistan-service, accessed September 2019
- Many non-U.S. citizens qualify for federal student aid, https://studentaid.ed.gov/sa/eligibility/non-us-citizens, accessed September 2019
- Montgomery GI Bill Active Duty (MGIB-AD), The U.S. Department of Veterans Affairs, https://www.benefits.va.gov/gibill/mgib_ad.asp, accessed September 2019
- Plus Loans, Federal Student Aid, https://studentaid.ed.gov/sa/types/loans/plus, accessed September 2019
- Post-9/11 GI Bill, The U.S. Department of Veterans Affairs, https://www.benefits.va.gov/gibill/post911_gibill.asp, accessed September 2019
- Qualified Tuition Program (QTP), https://www.irs.gov/publications/p970/ch08, accessed September 2019
- Retirement Topics – IRA Contribution Limits, https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits, accessed September 2019
- Student Loan Interest Deduction, IRS, https://www.irs.gov/publications/p970/ch04, accessed September 2019
- Tax Benefits for Education: Information Center, IRS, https://www.irs.gov/newsroom/tax-benefits-for-education-information-center, accessed September 2019
- The U.S. Department of Education offers low-interest loans to eligible students to help cover the cost of college or career school, Federal Student Aid, https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsidized, accessed September 2019
- Veterans Educational Assistance Program, https://www.benefits.va.gov/gibill/veap.asp