How to Bridge the Gap between College Costs and Financial Aid
Most students find that their financial aid package falls short of covering all college costs. This is partly because financial aid formulas provide a harsh assessment of ability to pay, partly because most colleges leave students with unmet need, partly because of hidden college costs and partly because most financial aid packages meet financial need with loans in addition to grants.
Even when colleges award generous financial aid, few students can afford to write a check for the full remaining amount needed to pay college bills. Financial aid money only goes so far, and there’s so much more you’re required to pay. There’s still going to be a gap between the college’s financial aid package and what you actually need. Other students may be struggling because their families don’t qualify for financial aid.
If you don’t have enough money to afford college, consider these practical tips on how to bridge the gap between college costs and financial aid.
Focus on Free Money First
Gift aid is free money that does not need to be repaid, such as grants and scholarships.
- Grants. Grants are usually based on financial need. File the Free Application for Federal Student Aid (FAFSA) to qualify for government grants, even if you don’t think you’ll qualify. Financial aid formulas are complicated enough that subtle differences can have a big impact on eligibility for need-based aid. For example, increasing the number of children in college at the same time can cause big decreases in the expected family contribution (EFC).
- Scholarships. Scholarships are usually based on merit, such as academic, artistic or athletic talent. Search for scholarships using free scholarship matching services like Cappex.com/scholarships. Apply to every scholarship for which you are eligible, no matter how small, even if it requires writing an essay. Continue searching for scholarships even after you get into college. There are some scholarships you can win only after you’re enrolled in college.
- Education Tax Benefits. Education tax benefits include tax credits and deductions that are claimed on your federal income tax return. This can save you hundreds or even thousands of dollars, depending on how much you spend on college costs. Examples include the American Opportunity Tax Credit, Lifetime Learning Tax Credit and the Student Loan Interest Deduction.
Earn Money for College by Working a Part-Time Job
You can’t really work your way through college these days, since college costs have increased so much. But, working a part-time job during the academic term and summer break can help cover part of college costs. Every dollar you earn is about a dollar less you’ll have to borrow.
- You can earn up to about $6,400 without affecting your financial aid.
- Don’t work too much during the academic year. Working up to 12 hours a week will improve your academic performance, because it forces you to learn time management skills. But, every additional hour beyond 12 takes away too much time from academics. Students who work 40 or more hours a week are half as likely to graduate.
- Check the box on the FAFSA to say that you are interested in Federal Work-Study jobs. This doesn’t commit you to working during the school year, but it may give you the option. You won’t get more grants if you don’t check this box. Federal Work-Study jobs can include jobs where you work with a professor on a research project and maybe earn college credit, not just working in the college cafeteria.
- Also look for jobs off campus. There are many jobs convenient to campus that may pay better than a work-study job. This may be a good option for working during the summer, since some jobs may not be able to schedule around your classes.
Break Up Big College Bills
If you can’t afford to pay the college bills in one big lump sum, ask whether the college offers a payment plan.
- Tuition Installment Plans. Tuition installment plans are a good alternative to long-term debt. Many colleges offer tuition payment plans, which split the college bill into up to 12 monthly installments. Tuition installment plans do not charge any interest, but may charge an up-front fee that is typically less than $100. If you don’t have the money right away to pay for school, but can pay in installments, this may be a good option for you.
Finance Remaining Costs with Student Loans
If you still have a gap between college costs, financial aid and your other resources, consider borrowing student loans.
- Federal student loans. Borrow federal first, because federal student loans are cheaper, more available and have better repayment terms. Federal student loans have lower fixed interest rates and more flexible repayment options than most other borrowing options.
If you exhaust the Federal Stafford loan limits, there’s a good chance that you are borrowing too much money. Your total student loan debt at graduation should be less than your annual starting salary. If total student loan debt is less than annual income, you should be able to afford to repay your student loans in ten years or less, which is a reasonable amount of time.
If you need to borrow beyond the federal student loan limits, the main options are the Federal Parent PLUS loan and private student loans.
- Federal parent loans. The Federal Parent PLUS loan is available to parents of dependent undergraduate students to help pay the student’s remaining college costs. The annual limit is up to the full cost of education, minus any other aid. Borrowers must not have an adverse credit history, such as a recent serious delinquency or bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or default determination within the last five years. But, Federal Parent PLUS loans do not depend on credit scores or debt-to-income ratios.
- Private student loans. Unlike federal parent loans, where the student is not obligated to repay the debt, only the parent, a private student loan is borrowed by the student. However, more than 90% of private student loans require a creditworthy cosigner, which is often the parent, so the parent is still obligated to repay the debt. If the borrower or cosigner has excellent credit, it can yield a lower interest rate and fees on a private student loan than on a Federal Parent PLUS loan. Private student loans are offered by banks and other financial institutions, from national lenders to state agencies to credit unions, so there are many options for financing college costs. Be sure to shop around to find the best loan for your specific circumstances.
- Private parent loans. Private parent loans are like private student loans, but without the student. The parent is the only borrower on a private parent loan. Some parents prefer private parent loans because the parent’s credit history will not be affected by the student’s failure to make student loan payments on time.
Consider other ways of cutting college costs, such as enrolling at a lower-cost college, minimizing the number of trips home from college, taking a heavier course load to finish quicker, getting a roommate to split the rent and buying cheaper textbooks.