All Financial Education

Paying for College Responsibly

June 29, 2016

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When you’re planning for college, the first question is often which school to choose. But just as important is the question of how you’ll pay for it. That’s why we’ve partnered with Sallie Mae® to bring you their 1-2-3 Approach to Paying for College. These three steps can help you make more informed, responsible financial decisions for a big investment in your future.

  1. Start with money you won’t have to repay. Supplement your college savings and income by maximizing scholarships, grants, and work-study.

Begin by taking stock of college savings that have been put aside in a 529 plan or other dedicated college savings account. You should also include current income that you’re earmarking for college. Then, maximize “free” money that you won’t have to repay, including scholarships, grants, and work-study.


Scholarships are a great way to get free money. They’re offered by federal and state governments, high schools and colleges, religious groups, professional associations, employers, and other companies.

You need to apply for scholarships — and the earlier, the better, since many have deadlines. These sites can be useful for researching scholarships :

Grants and work-study

Grants and work-study are generally federally funded, so be sure to submit the Free Application for Federal Student Aid (FAFSA) to apply for them.

  • The FAFSA is used to calculate your Expected Family Contribution (EFC). Financial aid eligibility is generally equal to the difference between your EFC and the school’s cost of education.
  • The financial aid award letter, sent by each school after acceptance, details how much you’re being offered in grants and work-study.
  • Pell Grants, the largest federal grant program, are based on financial need; unlike a loan, a Pell Grant doesn’t need to be repaid.
  • Work-study programs are offered by the federal and state governments, as well as by schools. They offer part-time jobs that let students earn funds to help pay their education expenses.
  1. Explore federal student loans. Apply by completing the Free Application for Federal Student Aid.

After you’ve maximized your free money, consider federal student loans, which are provided by the government and can offer a variety of repayment options. Generally, a federal loan for undergraduate students is taken out by the student, who’s responsible for paying it back. There are also loans for parents and graduate students.

  • Direct subsidized loans are for students with demonstrated financial need. The US Department of Education pays the interest while the student is in school at least half-time and for the first six months after leaving school.
  • Direct unsubsidized loans are not need-based. Your school determines the amount you can borrow based on your cost of attendance and how much other aid you’re receiving. Interest is charged during all periods.

Direct PLUS Loans are unsubsidized federal loans for parents of dependent students and for graduate/professional students. Interest is charged during all periods. If a parent takes out the loan, he or she is responsible for repaying it.

  1. Consider a responsible private education loan. Fill the gap between your available resources and the cost of college.

If you still need additional funds after following steps 1 and 2, consider a private student loan. Private loans differ from federal student loans in several ways:

  • They’re originated by banks and credit unions.
  • They’re credit-based: the lender reviews your credit score and history to determine if you qualify
  • If you’re new to credit, a cosigner —parent, guardian, or other adult — may help.
  • Your interest rate is based on several factors, including your creditworthiness and the loan terms and options that you choose.
  • Private student loans offer different options: some offer payment options (including making payments while in school) and other benefits that can help reduce your interest rate and/or overall cost.
Encouraging Responsible Borrowing
Sallie Mae has helped more than 30 million Americans pay for college since 1972. We encourage students and families to supplement their savings by exploring grants, scholarships, federal and state student loans, and to consider the anticipated monthly payments on their total student loan debt and their expected future earnings before considering a private education loan.


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