Janice Lozano
The cost of college education is a significant financial challenge for many students and their families. While the answer to the question of how students pay for college is different for everyone, most rely on a combination of sources, including scholarships, student loans, and help from their parents. Many students also work part-time to fund their education. The average cost of college varies from state to state and year to year, with the most expensive public schools in the Northeast and the least expensive in the South and Plains regions. The average cost of tuition at a 4-year institution is $17,709, while the average in-state tuition at public 4-year institutions is $9,750. The average cost of a 2-year college education is significantly lower, with in-district tuition and fees averaging $3,598 annually. The cost of college has been increasing over the years, with tuition increasing by 16.9% at 2-year colleges from 2012-13 to 2022-23. The majority of students (67%) pay for their college education themselves, with 61% of four-year students solely paying their education costs and 71% of two-year students doing the same.
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What You'll Learn
Student loans
There are two main types of student loans: federal and private. Federal student loans are available to students without a credit check or cosigner, and they offer various protections if borrowers struggle with their payments. Private student loans, on the other hand, are provided by banks and other financial institutions and typically require a creditworthy endorser. Private loans also generally have fewer repayment options and higher interest rates compared to federal loans.
According to a 2024 report, more than 43 million Americans hold federal student loans, with a collective balance exceeding $1.7 trillion. This makes student loan debt the second-largest type of consumer debt in the US, after mortgages. The average student loan debt for federal loans was about $38,000 per borrower as of 2023. However, this amount can vary depending on the type of college and the borrower's degree. For example, at private non-profit four-year colleges, 13% of students have private loans, and 52% have federal loans, while at public four-year colleges, 9% have private loans and 49% have federal loans.
The reliance on student loans is particularly prominent among young adults, with research indicating that young adults are more likely now than in the past to take out loans to pay for their education. Among adults under 40 with a four-year college degree, 36% have outstanding student loan debt. Additionally, 20% of U.S. adults with undergraduate degrees and 24% with postgraduate degrees report having outstanding student loans.
While student loans can help make an education a reality for many, they also come with financial consequences. More than half of U.S. adults with student loan debt (59%) say that it has caused them to delay important financial decisions. Additionally, 63% of borrowers have faced financial hardship due to loan payments, and half have missed payments or fallen behind on other bills.
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Parental contributions
Parents utilise various strategies to fund their children's education. Many start saving from an early stage, taking advantage of tax-advantaged savings accounts, such as the 529 plan, which offers tax-free growth and withdrawals for educational expenses. Some parents also tap into their retirement accounts, investments, or equity to cover the rising costs of higher education. In 2022, 37% of families used savings and investments outside of dedicated college funds, and 18% dipped into their retirement funds.
The Federal government considers it the parents' responsibility to pay for their child's college education, which is reflected in the financial aid application process. The Free Application for Federal Student Aid (FAFSA) requires parental financial information, and it is challenging for students to qualify as independent. However, not all parents can or choose to pay for their children's college expenses. According to EducationData.org, 39% of students pay for all their college costs, while 32% receive no financial support from their parents.
The decision to contribute to a child's college education depends on various factors, including family dynamics, financial circumstances, and the availability of other funding sources. Some parents may prioritise saving for retirement or have limited financial resources. Additionally, students from lower-income backgrounds might be more likely to receive financial aid, grants, or scholarships, reducing the burden on their parents.
To supplement their savings, parents may consider borrowing options such as Parent PLUS Loans or private parent loans. However, these loans often come with varying interest rates, fees, and eligibility requirements. It is crucial for parents to carefully evaluate their financial situation and explore all available options to make informed decisions about contributing to their child's college education.
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Scholarships and grants
The federal government offers several grant and scholarship programs to help students pay for college. One of the largest federal scholarship funds is the Pell Grant, which provides financial support to 7.5 million low-income students annually. The average Pell Grant award for undergraduates is between $4,100 and $4,418 per year. The Federal Supplemental Educational Opportunity Grant (FSEOG) is another grant program that provides undergraduate students with exceptional financial needs between $100 and $4,000 in scholarship funds. The Chafee Educational and Training Voucher (ETV) program is also a federal program that offers up to $5,000 per year for tuition and other costs of attendance to current and former foster youth between the ages of 14 and 26.
State governments also play a significant role in providing financial aid to students. Nearly every state hosts a financial aid program, and in 2021, the federal government appropriated a total of $29.098 billion for student financial aid across all states. To qualify for state-based grants, most states require students to be residents, fill out the Free Application for Federal Student Aid (FAFSA), and attend an in-state school. Some states even offer regional tuition exchanges, allowing students to pay in-state tuition at schools in nearby states.
Colleges and universities themselves also provide institutional grants and scholarships to students. Private nonprofit institutions tend to award the highest average amount of institutional grants per first-time, full-time undergraduate student. In 2021-22, 83.9% of students at private nonprofit four-year institutions received institutional grants and scholarships, with an average award of $24,969. Even if a student is not enrolled in a private nonprofit institution, they may still be able to receive institutional grants or scholarships from their college or university.
Private organizations and scholarships are another option for students seeking financial aid. These scholarships may be merit-based, need-based, or based on a special interest shared by the organization and the student. Students can search for private college grants using the U.S. Department of Labor's free scholarship and grant search tool. Additionally, students can look for scholarships from local districts and third-party providers.
Overall, scholarships and grants are an important tool in reducing the cost of higher education for students and their families. By exploring the various options available, students can find financial aid opportunities that can make a significant difference in funding their education.
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Part-time work
Many students take on part-time work to help pay for college. In 2020, about 74% of part-time undergraduate students and 40% of full-time students in the US were employed, according to the National Center for Education Statistics.
There are a variety of part-time jobs that students can take on to help pay for college. Some employers offer tuition assistance or reimbursement for educational materials. For example, Starbucks partners with Arizona State University through its College Achievement Plan, which allows employees to earn an undergraduate degree online. Similarly, fast-food companies like Pizza Hut and White Castle have launched programs to offer tuition reimbursement for hourly workers.
Students can also find part-time work as nannies or babysitters, which can be lucrative and sometimes even include housing. Other options include freelance work, such as designing or translating, or creating content for platforms like YouTube and TikTok. Students can also work in the service industry, as the hours are flexible and tips can help pay for school. Additionally, some companies offer online tutoring services, providing flexibility for college students to work from home.
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Military benefits
The military offers a range of benefits to help service members, veterans, and sometimes their families pay for college. These benefits include tuition assistance, scholarships, grants, and student loan repayment programs.
Tuition Assistance
Each military service has its own tuition assistance programs, which can pay up to 100% of tuition fees or expenses, up to a maximum of $250 per credit and $4,500 per fiscal year per student. Some services limit it to $4,000 a year, and it is paid on a per-class basis. The Coast Guard's College Student Pre-Commissioning Initiative is one such program, requiring attendance at a school from a designated list.
Scholarships
The Army Reserve Officers' Training Corps (ROTC) offers scholarships that help cover the cost of tuition and school supplies while the recipient trains to become a commissioned Army Officer. ROTC scholarships are also available for students committed to serving as officers after graduation, covering tuition, fees, and sometimes living expenses.
Student Loan Repayment
The Army and Navy offer loan repayment programs to help enlisted personnel pay off college loans accrued before service. The Army will repay loans at a rate of one-third of the loan or $1,500 (whichever is greater) for each year of full-time duty served, up to a maximum of $65,000. The Navy offers a similar program with the same maximum repayment amount. National Guard Student Loan Repayment offers up to $50,000 for eligible members.
Other Benefits
The Post-9/11 GI Bill provides aid for college education or on-the-job training for those who served on active duty after September 10, 2001. It can cover up to 100% of in-state tuition and fees at public institutions. The Montgomery GI Bill – Selected Reserve (MGIB-SR) offers up to $439 monthly for full-time students pursuing approved education or training. The Green to Gold program helps cover school costs for active-duty soldiers looking to finish a bachelor's or graduate program while earning a commission as an officer. Additionally, service members may be able to earn college credit through their military experience, saving time and money.
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Frequently asked questions
65% to 67% of college students pay for their education with no help from their parents or family.
The average cost of tuition at a 4-year institution is $17,709. The average cost of in-state tuition at a public 4-year institution is $9,750. The average cost of out-of-state tuition at a public 4-year institution is $28,445. The average cost of tuition at a 2-year institution is $3,598. The average cost of out-of-district tuition at a 2-year institution is $8,622. The average cost of tuition at a private 2-year institution is $20,019. The average cost of tuition at a private, for-profit 2-year institution is $16,444.
Students pay for college through a combination of scholarships, student loans, parental contributions, grants, gifts from relatives and friends, their own income and savings, and work-study programs.
The cost of college depends on the type of school, location, academic program, and size. Students from low-income backgrounds may qualify for need-based grants and scholarships. International students may have additional visa costs. Military personnel, veterans, and their families may be eligible for education benefits and scholarships.
