In the past, I’ve focused on exploring topics that relate directly to personal finance, however, for the next few weeks, I’ll be pivoting and exploring a topic that I believe is extremely important to understand, and fits right in with my target demographic: paying for an education.
Paying for an education, whether it be college or vocational school, can be a very confusing topic because the options are endless. Today, I’ll be going over some of the most popular ways of paying for an education and I’ll explore each of these in-depth over the next few weeks.
There are only two real ways an education is funded. Either you pay for your tuition, or someone else does. Every single method of paying for an education falls under these two categories. Financial aid? Someone else. Student loans? You. Scholarships? Someone else. And so on.
Ideally, someone else would pay for your tuition, so let’s explore the options that fall under this category. The first option, and one most people can use, is scholarships. Scholarships are, in short, grants given out to students to be used for education. In order to get these grants, you usually need to apply. A ton of different foundations and companies give out scholarships, with some offering to cover the entirety of your education, if you win/qualify for the scholarship. This means 4 years of tuition-free education! However, it's important to note the more money provided by a scholarship, the more competitive it will be, so scholarships that do provide full tuition often have thousands of applicants.
This doesn’t apply to all scholarships, though. Many smaller scholarships are much easier to get, and applying to enough of them will certainly make a difference when the tuition bill comes around.
Applying for scholarships depends on a variety of factors, although most will ask for your GPA, transcript, and probably some form of essay response. Many scholarships are intended for certain groups, based on ethnicity, region, and field of study, so try and look for scholarships that specifically suit you because you might have a better chance of winning those.
Financial aid grants are another way of paying for college. Unlike a scholarship, a financial aid grant isn’t application-based, so you don’t need to write essays or submit your GPA. Instead, financial aid is need-based. This means, in order to qualify for financial aid, you/your family’s income must be below a certain threshold, low enough to demonstrate a need for assistance paying for school. As such, financial aid is usually reserved for lower-income families. Financial aid is offered by both the Federal government through FAFSA, and by colleges themselves. Financial aid is used to either lower the cost of tuition, or eliminate it entirely. There are a few different forms of financial aid, including grants, which don't need to be paid back, work-study programs, and federal student loans.
Speaking of, the next option is the least desirable yet most common option: student loans. Student loans are like any other loan, you borrow money from an institution, use it to pay your tuition, and pay the loan back little by little, over time. There are two key kinds of student loans, private student loans, and federal student loans.
In nearly every way, federal student loans are better. Federal student loans are given out by the government, and anyone can get a federal student loan, regardless of income. However, if you fall in a specific income bracket, you get a special form of federal loan, called a subsidized loan. Subsidized loans allow you to pay no interest while you're getting your education and no interest for the first 6 months after you graduate.
If you don’t fall into the income category needed for subsidized federal loans, no need to worry, you can still get unsubsidized federal loans, however, you won’t get the interest benefits of subsidized loans. While federal student loans usually aren't enough to cover your entire tuition, they do offer below-market, fixed interest rates (their biggest benefit).
Private student loans are given out by banks, credit unions, and other institutions. They’re like any other loan in that you need to have good credit to get the loan (or suffer an extremely high-interest rate). If you’re like most teenagers and don’t have any credit, first go read this article on how you can begin building credit, and then go ask your parents to cosign on the loan. Private student loans usually charge much higher interest than Federal student loans, while also offering only variable rates. This is their biggest downside.
I hope this helped you understand a few of the options that are available to pay for your education. I’ll be dedicating the next month’s articles entirely to exploring all of the options I discussed today, in further detail. With that said, thank you for reading, I hope you enjoyed today’s article, and I will see you next Wednesday!