How To Pay For College: A Family Guide


You got into your college of choice. How to pay for college?

The latest student loan statistics reflect  $1.56 trillion held by 43.2 million student borrowers by an average of $39,351. 

College education leads to higher income, job security, and great opportunities in life. But, it may take until age 34 for you to fully pay for college. Student debt can put a damper on one’s ability to obtain wealth. It pays to plan to save as much as possible ahead of time and lessen the burden, supplementing with more attractive federal loans, scholarships, grants, and work-study programs before tapping higher-cost private loans.

Here are my five recommendations:

1) Plan for your child’s college as early as feasibly possible. Get a jump with these six possible ways.


2) Fill out the FAFSA (The Free Application for Federal Student Aid) application. Don’t think of it as an option.

3)Reduce your  Expected Family Contribution (EFC) in legal ways.

Parents may want to consider private loans if they borrow above their contribution through their income and savings. 

They are not all need-based. 

4) Get as much as you can from federal loans for students before private loans. 

5) Go for work-study, grants, and scholarship money. Scholarships are merit-based.

If you do not get the award you had hoped for, there is an appeals process for you to follow below.

I want to share my personal story about going to college to provide you with a different perspective perhaps.

I went to a four-year public college (City University New York or CUNY) at age 15.5 years in the Bronx. My parents did not want me to go away to college given my age, but truth be told, we just couldn’t afford it. I was young, foolish, and too immature for it to matter much to where I went. I went to college to make my parents proud as the firstborn to attend college. My textbooks were more expensive than the tuition. I lived at home.

Later, I earned an MBA attending a public college at night while working on Wall Street, making a seven-figure compensation in a few years. I subsequently went back to school and earned a law degree. Do I regret my college experience? No, I don’t, though I would have liked the college dorm experience. It was a benefit to not carrying burdensome loans. That said, I don’t want my children to follow in my footsteps.

As a parent, I want them to go to the best college they apply to and enjoy a memorable college experience. Though we have 529 plans for each child, I expect we will need to borrow some money. My son, Tyler, is in the process of applying for college now.

2020-2021 College Costs For Tuition and Fees Room & Board:

Four-year in-state and out-of-state public colleges and private colleges, two-year in-district (community colleges). If you were selecting based on costs, only in-state four-year and two-year colleges are your least expensive options, benefiting from that state’s taxpayers. 

Average tuition and fees before room & board in 2020-2021 and inclusive of room, board, books, personal expenses are:

  • Four-year in-state college was $10,560, and $26,820.
  • Four-year out-of-state college was $27,020, and $43,280.
  • Four-year private college was $37,650, an $54,880.
  • Two-year public in-district college was $3,770, and $18,550.

These are average published prices and are not reflective of respective college reciprocal programs offered between certain states. Also, if your child’s in-state public college doesn’t have particular courses that are their chosen major, you can go to an out-of-state college at a similar price if they provide that program. While it may be overwhelming, and you are almost at the finish line, do your research.

According to Sallie Mae’s survey of families for 2020-2021, the typical college cost was  $26,373, down from last year’s $30,017. Here is the typical family’s contribution:

Parents and students share most of the cost for college through their sources and borrowing.

Parent income and savings are the most significant sources at 45% of the total, student income and savings at 8%, and relatives contributions of 2% supplying 55% of college needs. The money from scholarships and grants contribute another 25% for a total of 80%, and 20% for borrowing. 

Significantly, parents contribute income and savings, about 37% come from college savings plans like 529 accounts. Parents should not use money from emergency funds or retirement money. Parents sometimes use their retirement savings for their children’s college education. Withdrawing retirement money significantly impacts losing years of compounding, incurring penalties and taxes, and is usually a regrettable choice. 

Borrowed funds covered 20% of 2020-2021 college costs split between parents (9%) and students (11%). 

Should I complete the FAFSA? Yes, end of story.

If you are borrowing, federal loans are far more attractive but have loan limits by year, with the freshman year maximum loan is the lowest at $5,500 rising to a maximum of $12,500 annually. You can only borrow up to $57,500 for your total college. The government sets these amounts, but the colleges calculate the amount per individual student based on the college’s cost of attendance, so your child may get less than the limit.

Families need to fill out FAFSA for each academic year. Make sure you file on time, if not early, as some states award on a “first come, first served” basis. Check your state’s practices as they differ.

FAFSA determines whether you are eligible for need-based federal financial aid for college and may help you get scholarships, grants, and work-study programs for your student.

It is always a pain to fill out applications but if the goal is to get more affordable federal loans to supplement your income and savings contribution, go for it. Their website gives you the average time it should take to fill out the application, but that doesn’t consider the extraordinary amount of time it takes to compile the supporting records and paperwork. No doubt you have to be super organized.

In a Sallie Mae survey regarding how to pay for college, 75% of families, predominantly middle-income based, completed the FAFSA application, with lower filing rates for higher-income and lower-income families. The biggest reason those families did not fill the application was that families “believe they won’t qualify.”

What The Federal Government Looks At

In filling out the FAFSA application, the government expects you to divulge your financial situation. 

They look at your family’s finances, specifically:

  •  Taxed and untaxed income from two previous years.
  • Assets.
  • Received benefits like unemployment, social security, bonuses, and severance payments.
  •  Family size
  • and what other family members are attending college in that academic year to calculate Expected Family Contribution (EFC).

Non-reportable Assets include:

  • Qualified Retirement plans, such as 401K’s.
  • Qualified Annuities.
  • Whole Life and cash value of your insurance.
  • The primary family home.
  • Personal property (eg. cars) and household goods


 Legal Ways To Lower Your EFC

Among some of the strategies you can use to reduce your EFC:

Don’t do anything rash like trash your savings but don’t increase your earnings either. Instead, you can put money into your retirement savings account to the maximum levels. Retirement savings should be a parents’ priority.

Household size matters so if you have a dependent family relative living with you, but they are considering a move, a delay may be worthwhile. If your great aunt Matilda has been staying with you, let her stay! Better to have more dependents.

Paying down some high-interest rate debt associated with credit cards is worthwhile and may help your credit card score at the same time. You may need to take a private loan in addition to federal loans.

There are several federally sponsored loan programs for undergraduate students:

Stafford Loans are among the most common, desirable, and low-cost loans at fixed 2.75% interest rates offered directly to students rather than to parents, ranging from $5,500 to $12,500 per year, gradually rising after the first year.


There are the Direct Subsidized Loans and Direct Unsubsidized Loans. The US Department of Education is the lender at a fixed rate of 3.73%. These loans are also available to graduate and professional degree students but at higher interest rates than undergraduate degree programs. Your FICO score won’t count against you for these loans as everyone approved for these loans get the same rate. There are 4% origination fees on the loan amount. The loan terms are generally fixed and have a 10-year maturity.

Direct Subsidized Loans are need-based loans to students who demonstrate the need for financial help to cover higher education costs. You must be in school at least half-time. For loans disbursed on or after July 1, 2020, and before July 1, 2021, the fixed interest rate at 3.73%.  The government pays your interest while in school, and the loan repayment is more flexible, beginning after you complete school. If you can satisfy the needs threshold requirement, this is a desirable option.

The Unsubsidized Loans are different as they are not need-based. According to the Student Aid website, these loans have the same caps on loan amounts, and the interest rate is currently 3.73%. Still, you, not the government, are paying the interest cost, which accrues right away though there is the deferral of repayment until after you graduate subsidized loans. This is also a very desirable loan.

Direct PLUS (Parent Loans for Undergraduate Students) Loans are directed at parents, not students, and are not financially need-based. Parents’ proportion of federal loans are typically higher than private loans. There is no maximum loan amount at a specific amount but instead is tied to the cost of attendance minus any other financial aid the student receives via the Stafford loans.

These loans are at a higher rate of 6.28%, designed to supplement other sources of funds the students could obtain. These amounts are subject to a 4% origination fee of the loan amount. The rates for this option for parents are not very attractive. While there may be some flexibility with federal loans discussed below, you might want to look at private loans for yourself, not your children, if you have a good credit score.

Federal loan programs have Income-Driven Repayments (IDR) features that students or parents can apply. However, the student cannot use this if they default on all of their loans, and it cannot be used for PLUS Loans by parents if that is the only loan the family has. The one problem with applying for any repayments change is you may be extending the time of your repayments beyond the typical ten years, which may lower your amounts but burden you longer.

Under certain conditions, federal loan programs for students and parents may provide for forgiving, cancellation, or discharge loans. Separately, suppose parents work for the federal government or a not-for-profit entity. In that case, they may be eligible for loan forgiveness through the Public Service Loan Forgiveness if there are at least ten years of payments.

 Federal Grant and scholarship programs fund 28% of the average family’s needs in 2017- 2018. These programs give money for college, and families don’t have to pay for it. Almost all federal grant programs are need-based. See the list of grants here.

The federal scholarship programs are merit-based, received from schools, outside organizations, or businesses. You can find information as to how to apply here

In addition to the “free aid” you can get through the federal government, there are federal work-study programs that pay at least the federal minimum wage and are on-off campus. These programs are need-based, so check out their website here.

You can look at state programs for additional loans, grants, and scholarship opportunities, potentially supplement what you are getting through the federal programs. Take a look at the different programs by the state for possible loan/grant/scholarship opportunities here. You can look for merit-based scholarships by the college if your college is on this list. Some colleges have supportive loan programs for those families that are need-based, as the 25 colleges, including Harvard, are on this list.

Exercise Your Right To Appeal 

It is always a good idea to challenge your initial financial offer via an appeals process or a professional judgment process, especially if there are circumstances that occurred after the submission of your financial aid application.

Among the special circumstances are such as the sudden illness of a parent or another dependent in the home, job loss, unexpected medical illness, or your primary home was destroyed via force majeure or act of God.

Call or write a letter to the financial aid office at the college you intend to go.

You will need documentation.

The student financial aid administrators have the discretion to make decisions regarding your special circumstances codified by law here.

Final Thoughts

This post is about how you pay for college. You may be undergoing significant stress as you face these circumstances, but it could substantially help you financially.

This is the beginning of your child’s journey away from home. It may seem like a daunting task to figure out how to pay for college and all the related costs.  However, the long-term benefits are worth it.

Thank you for reading! Please visit The Cents of Money for other articles of interest, particularly on going to college.

Have you begun your exploration of college for your children? While it is a stressful time, it can certainly be another chance to learn from your child about their preferences and readiness for adulthood.


4 thoughts on “How To Pay For College: A Family Guide”

  1. Is sharing resources allowed? If so, I would like to suggest a list of external scholarships available: You wrote correctly that many scholarships are merit-based, but it is possible to find external options where you can get a scholarship even if your GPA is below average.
    Without scholarships and grants, I don’t know how I would have attended college, there is no way my family could afford to pay the full price and there is no way my personal income would have been enough.


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