Financial Lessons Learned When Paying for College

BIG Ideas:

• Make sure you know all the costs of college beyond tuition, such as room and board, books and supplies, and other fees.
• Create a budget so you know how much you and your family can realistically afford for college and stick to it.
• Complete the FAFSA even if you think you won’t qualify for federal aid, since many colleges use the information to offer you institutional aid.

There’s no question that college is a tremendous learning experience. But it’s not just what’s learned in the classroom that will make a difference. The real-world lessons you’ll pick up along the way – especially those about money – can have a lasting impact on your life and financial future.

Yes, one of the first and most important lessons you’ll learn during your college experience has nothing to do with grades, group projects, or late-night study sessions. It’s learning how to pay for college – and how the decisions you make now can affect your finances for years to come.

Whether you’re a student footing part of the bill or a parent navigating tuition payments, here are some real-world money lessons you need to know.

Know The True Cost of College

When people talk about the cost of college, they tend to focus on tuition. But that’s just one aspect of it. The true cost of college includes everything from room and board to textbooks, transportation, technology, and other fees.

Textbooks and supplies alone can cost more than $1,200 per year at 4-year public institutions. Add in room and board, transportation to and from school, and athletic fees and you’ve got a hefty bill to meet.

That’s why it’s essential to understand all the costs involved before making your school selection. Fortunately, there are tools to help, like The College Board’s College Net Price Calculator.

Be Realistic About Your Budget

With so many amazing schools out there, it’s tempting to focus on the ones with the best reputations, the coolest dorms, or the most beautiful campuses. But one of the smartest decisions you can make is choosing a school that fits your budget.

Sure, you may be really hung up on that dream school, but if going there means taking on more debt than you can afford and putting you and your family’s finances at risk, it’s not the right decision.

Before making your final decision, sit down and review what you and your family can realistically afford each year. Be sure to consider not only tuition and housing but also hidden expenses like travel, fees, and living costs. By setting a clear budget, you’ll be better prepared to make smart choices about where to attend and how to pay for it.

Never Borrow More Than You Need

Student loans can be a valuable tool in making college possible, but only if used wisely. The key is to borrow only what you need. Borrowing more than you need now can lead to a common ailment that affects many recent grads: debt regret, which makes it hard for them to achieve future goals like buying a car, renting an apartment, or saving for retirement.

One guideline about how much to borrow is to keep your total student loan balance below your expected first-year salary after graduation. Also, the best way to avoid overborrowing is to make a budget and look for ways to reduce the cost of college, like applying for scholarships, commuting to school, or working during school.

Apply For Federal Aid

One of the first and most important steps in the college financing process is completing the Free Application for Federal Student Aid or FAFSA. Essentially, the FAFSA determines your eligibility for federal grants, loans, and work-study programs that can make college more affordable. Even if you think your family earns too much to qualify, you should still complete the FAFSA.

When you fill it out, you’ll have the opportunity to list the schools you’re interested in. Each of those schools will send you a financial aid offer outlining the aid available. Compare offers carefully to see which school provides the best value overall. You may be surprised that the schools you thought were more expensive may end up costing less.

Scholarships Can Help

Who doesn’t love free money? Scholarships are one of the best ways to reduce your out-of-pocket costs for college. The good news is that there are thousands available based on all kinds of criteria – from academics to athletics to leadership and community service. Learn how to find scholarships and grants.

Even small scholarships can add up and reduce some of the costs of college. Also, remember that they aren’t just for incoming freshmen; Many schools and organizations offer awards for students in school

Shop Around for Private Loans

If federal aid and scholarships aren’t enough to cover your costs, private student loans can help. But before you sign on the dotted line, understand how they work.

Private loans are offered by banks, credit unions, and other non-government lenders. Because they typically depend on your credit history and income, you may need a co-signer to qualify. Also, since private loans are not backed by the federal government, some have higher interest rates and fees and don’t offer some protections available with federal loans, like income-driven repayment and loan forgiveness.

If you think you’ll need a private student loan, shop around and compare terms from multiple lenders. Even a few percentage points in interest can make a big difference in your monthly payments and your overall cost of borrowing.

Understand What Co-Signing Involves

If you’re a student who doesn’t yet have established credit, you may need a co-signer to qualify for a private student loan. A co-signer agrees to share legal responsibility for making the loan payments. So, if you don’t make your payments, your co-signer is responsible for them.

Before asking someone to co-sign, have an open and honest conversation about expectations and how funds will be repaid.

Likewise, if you’re a parent considering co-signing, make sure you understand the risks and ensure that you’re not taking on the potential for more debt that can sacrifice your own financial future.

Heed These Powerful Lessons

With the high cost of college today, paying for college can seem like a huge challenge. Learning how to budget, borrow responsibly, and make informed financial decisions now can help make the process easier and pave the way for a brighter financial future.

Brazos is Here to Help Make College Affordable

For more than 40 years, Brazos has helped make college costs more affordable for parents and students. As a Texas non-profit lender, we offer competitive rates on private student loans that can help you save. Contact us to learn more.