Lana Oconnell
There are many ways that students pay for college, including scholarships, loans, jobs, or parental contributions. The cost of college has been steadily increasing, and in 2025, the average cost of tuition at a 4-year institution was $17,709. The average student borrower spends roughly 20 years paying off their loans, and the ultimate price of a bachelor's degree may be as high as $562,868 when accounting for lost income and loan interest. In terms of percentages, 39% of students pay for all of their college expenses, 32% pay for none, and 29% pay for some. Parental contributions make up the largest share of a student's funding sources, with an average of $11,862 per year. Scholarships and grants cover an average of $7,500 per year, and 71% of college-bound students seek federal aid.
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What You'll Learn
Parental contributions
Parents use various strategies to fund their children's education, including income, savings, borrowing, and college savings accounts. In 2022, 37% of families used savings and investments outside of dedicated college funds to boost their children's college funds. Some parents also tap into their retirement funds, although this may come with penalties for early withdrawal. Additionally, 33% of families utilize specialized 529 plans, which offer tax-advantaged savings accounts for education expenses. These accounts allow for tax-free withdrawals as long as the money is used for college.
The rising cost of college is a significant concern for parents, and many struggle with the decision of how much to contribute. While some parents aim to cover all expenses, others set a specific percentage or dollar amount, or contribute as much as they can afford. It is important for parents to consider their financial obligations, such as mortgages, bills, and retirement contributions, when deciding how much to contribute to their child's college education.
In addition to parental contributions, students also rely on other sources of funding, such as scholarships, grants, loans, and their own income and savings. According to a survey, parental contributions covered an average of $11,150 per year, while scholarships and grants contributed $8,150, loans contributed $5,510, student income and savings contributed $2,760, and gifts from relatives and friends contributed $450.
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Scholarships and grants
Numerous entities offer grants and scholarships, including federal and state governments, schools, community organizations, private organizations, businesses, and nonprofits. Federal grants, such as the Federal Pell Grant, the Federal Supplemental Educational Opportunity Grant (FSEOG), and the Teacher Education Assistance for College and Higher Education (TEACH) Grant, are generally need-based and can provide substantial funding. For example, Pell Grants offer a maximum of $6,345 per academic year. Private non-profit schools are also known for offering generous institutional grants and scholarships.
Students can also explore smaller scholarships, typically ranging from $500 to $1,000, which often have less competition than larger awards. These scholarships can add up to a significant amount of financial aid, with approximately $24 billion in scholarships available to college students each year. Additionally, students from low-income families may qualify for need-based grants by filling out the Free Application for Federal Student Aid (FAFSA). This helps schools determine eligibility for financial aid and need-based grants.
State-specific grants and scholarships are also available, such as those offered by the New York State (NYS) Higher Education Services Corporation (HESC). These include tuition awards for part-time students, scholarships for high-achieving high school students, and grants for enrolled members of a New York State tribe or their children. Texas also offers various scholarship and grant opportunities, such as the Texas Armed Services Scholarship Program and the Texas Educational Opportunity Grant Program (TEOG).
It's important to note that scholarships are not solely based on athletic or academic prowess. Many scholarships are geared towards specific careers, such as teaching or healthcare, or are designated for specific groups, such as members of the military, veterans, or their dependents. Additionally, some institutions are dedicated solely to providing scholarships, such as the Evalee C. Schwarz Charitable Trust for Education.
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Loans
The rising cost of higher education has made paying for college increasingly challenging for students and their families. As a result, many students turn to loans to help bridge the financial gap. In fact, according to research from U.S. News, 61% of graduates in 2022 had borrowed funds for school.
Each year, approximately 30 to 40% of undergraduate students take out federal student loans. In the 2018-2019 academic year, 28% of undergraduates took out federal student loans, up from 23% in 2001-2002. Federal student loans are a significant source of funding, with $120 billion in federal student aid distributed annually in the form of grants, work-study, and loans. Students at four-year private nonprofit schools receive the most scholarship and grant funding, while those at two-year private for-profit schools receive the least.
Among bachelor's degree recipients, around 65% utilized student loans to help cover costs during their college years. This percentage is even higher, around 75%, among graduates from private four-year schools. At private non-profit four-year colleges, 13% of students have private loans, and 52% have federal loans. Meanwhile, at public four-year colleges, 9% of students take out private loans, and 49% take federal loans.
The average student loan debt for federal loans was about $38,290 per borrower as of 2023. Student borrowers pay an average of $2,636 in interest each year, and it typically takes about 20 years to pay off these loans. The ultimate price of a bachelor's degree, considering factors like lost income and loan interest, could be as high as $562,868.
Middle-income students are the most likely to take out federal loans (50.8%), and 57.4% of students living in campus housing utilize federal loans. Black students are the most likely to borrow federal loans at 82.9%. Four years after graduation, Black borrowers owe $25,000 more than Caucasian borrowers for bachelor's degrees.
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Student income and savings
Students and their families employ a variety of strategies to fund college education. While parental contributions make up the largest share of a student's funding sources, student income and savings also play a significant role.
In the 2023-2024 academic year, American college students and their families paid 48% of college costs out-of-pocket, which amounted to $13,760 per student. Among students who do not borrow to pay for college, students cover 9% of costs with their own income and savings, while their parents pay for 56% of costs. At public, state-funded colleges, 53% of students use their savings to pay at least some of their tuition fees, and 70% have parental contributions towards their tuition.
Students may work and save income to attend college, with 21% of families adopting this strategy. Students can also take on part-time jobs during their studies to contribute to their college expenses. Scholarships and grants are another important source of funding, covering up to $8,150 of annual academic costs per student.
Additionally, many families use dedicated college savings funds, such as tax-deductible 529 plans, to save for their children's education. These plans allow for tax-free withdrawals as long as the funds are used for qualified education expenses. In 2023, over 16 million American families saved for college using 529 plans, with an average account balance of $30,295.
The type of school a student attends may also impact their savings strategy. For example, at four-year public universities, 41.4% of tuition comes from parental income and savings, while at private universities, students and families pay 32.6% of costs out-of-pocket.
Overall, by combining student income and savings with parental contributions, scholarships, grants, and dedicated college savings plans, students and their families can work towards covering the costs of a college education.
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Federal financial aid
The FAFSA process has introduced the Student Aid Index (SAI), which assesses a student's financial need and determines the amount of federal student aid they qualify for. This index supersedes the Expected Family Contribution (EFC) formula. Students must meet basic eligibility requirements, including demonstrating financial need, to be considered for federal student aid. Grants, a significant component of federal financial aid, are typically awarded based on financial need. The average grant amount varies depending on the type of school attended, with students at four-year private nonprofit schools receiving the most grant funding.
Federal grants include the Federal Pell Grant, the Federal Supplemental Educational Opportunity Grant (FSEOG), the Teacher Education Assistance for College and Higher Education (TEACH) Grant, and the Iraq and Afghanistan Service Grant. The Pell Grant, with a maximum award of $6,345 per academic year, offers the highest amount among these federal grants. Scholarships, another essential aspect of federal financial aid, are also available from various federal institutions, including those within the Department of Health and Human Services (DHHS).
Additionally, federal work-study programs provide students with opportunities to earn money while attending college. These programs offer flexible part-time jobs that fit around student schedules. Lastly, federal student loans are a significant component of financial aid, with an average interest payment of $2,636 per year and an average repayment period of 20 years. While loans provide immediate financial assistance, students should carefully consider the long-term financial implications, as the ultimate price of a bachelor's degree, including lost income and loan interest, can be significantly higher than the initial loan amount.
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Frequently asked questions
Students pay for 39% of college expenses, with 32% paying for none and 29% paying for some.
Parental contributions make up the largest share of a student's funding sources, with an average of $11,150 per year.
Scholarships and grants cover $7,500 to $8,150 of annual academic costs per student. 3 in 4 recipients say scholarships made college possible.
71% of college-bound students seek federal aid to pay for college. $120 billion in federal student aid is distributed annually in the form of grants, work-study, and loans.
Loans cover $5,510 of college costs per year on average. The average student borrower spends roughly 20 years paying off their loans.
