What Every College Student Should Know About Finances Part 1: Choosing and Paying for College

Choosing a college, major, and debt load are important to your future professional and personal lives.

• Written by Marjorie Daley, author of the New Adults’ Guide to Basic Finances.

Table of Contents

1. Choosing a College
2. College ROI
3. Choosing a Major
4. What You are Buying
5. Paying for College – Free Money
6. Paying for College – Loans
7. Summing It Up

College is the start of a new life and the first step on your path to the future. It’s also a time for making choices that can affect and maybe even ruin this shiny new future. Money and debt are two of the biggest factors in your college success and your future. Researchers have found that more than half the college students they questioned are not saving, are not tracking their spending, and have had no financial education in high school or from their parents. It’s pretty difficult to be financially successful when you are handicapped by no education or training in what can be a confusing subject.

College is a way of investing in yourself. Education is rarely wasted because whatever you learn should help you to grow and develop. However, it can be a very expensive investment. Is the expense worth it? The honest answer is it depends on what you will make of the experience. If you plan to drink away your days or to gripe about every class that you have to take outside of your major, it really is not. It also depends on what you plan to do with your college education. I am not working in the profession that I was trained for in college, but the research and writing skills and liberal arts education allows me to succeed in my unexpected profession. 

To come up with topics, I thought way back to my college days when I was one of the more than 50% mentioned above. I then asked my college-aged children and their friends what they wished they had known. Several professor friends also pitched in what they have seen over their years of teaching. I also spent time wading through the literature to see what financial experts had to say. Let’s dig in to this college search and see what you need to know about finances. 

1. Choosing a College

The college you choose can have a huge impact on your current and future finances

Choosing a college is an important part of your college career. Undergraduate students should consider:

• your major
• the reputation of the school
• the location
• the cost

Since you are on Collegerank.net already, you are spending time making a good choice. Let’s look at some of the options.

Junior or Community College

Smaller classes, smaller student body, and generally less expensive option for students who may need more support

Average Tuition Range: $5,014 (public in-state) to $15,507 (private)

Junior and community colleges often get a bad rap. The classes are viewed as less rigorous, and the professors “only” have their master’s degrees. The truth is that a junior college can be an important step in your college career. For students who have a less-than-stellar high school career, are first-in-the-family college attendees, or need a low-cost option, a community college may be your best bet. Getting your feet under you and completing your general education requirements mean you can move on successfully and spend less money at a more expensive school. Just make certain that your general education credits will transfer to your next institution.

Private College

The sticker price can be offset by scholarships and grants. Not always the most expensive despite the average cost.

Average Cost: $50,900 (tuition, room and board)

Range: $5,790 to $77,696

Many people believe that attending a top private school is better than a state university. There are some pluses. First, most private universities are smaller, allowing you to adjust to college life without being overwhelmed. Many private colleges have excellent scholarships available which can keep the cost to attend very low. You can also choose a single-gender student body, a religiously oriented school, or other focus that matches your needs. You may also find that a recommendation from a professor at a private college can open doors at a larger institution as you apply for a master’s degree program or medical school.

Public University

Great selection of sizes and costs. May be a very economical way to get an education.

Average Cost: $25,290 (in-state) $40,940 (out-of-state)

Range: $5,220 to $38,990 (tuition only)

Public universities run the gamut from small to huge and from inexpensive to the sky’s the limit. One of the big advatages of attending a public university is usually cost. Being funded by the state and federal government can make tuition cheaper compared to most private universities. You can choose the size, location, and reputation and usually find a perfect match for your unique needs. As mentioned above, there is a perception that public universities are not as good as private schools. The reality is that you may be paying for the name and not for the quality of education you are getting. I would suggest focusing on the big-name university for an advanced degree rather than worrying about that fancy diploma for your bachelor’s degree.

For-Profit Schools

Not worth the money or time. Look into a junior or community college. 

Average Cost: $17,000

For-profit schools offer a fast track to a degree with none of the liberal arts nonsense that you get in colleges. For-profit schools do not appear to have much in the way of oversight and their degrees are not as valuable in the long run as a diploma (or credits) from a university. For-profit credits do not transfer so you will have to retake some classes. 

Another issue is that for-profit schools have a low graduation rate (30%). According to the College Board, 68% of private nonprofit college students and 59% of public college students complete their degrees.

In addition, there is value to a liberal arts education. In my eight years of university, the most valuable class I took was a required class on rhetoric. I have used the concepts I learned in that class possibly more than any other class. My college student discovered that they enjoyed international relations courses and has taken several even though those classes fall outside their art degree requirements.

If you are looking for a fast-track degree, look into a junior college instead of a for-profit. Many junior colleges have certificate programs as well as Associate’s degrees, and the credits will usually transfer if you decide to get another degree.

Party Schools

Can be fun but possibly not a good expenditure of money.

Range: $12,568 to $43,111

If your main goal to attend college is to party, there are far cheaper options that you can indulge in than going to college. The range above reflects schools named in Niche’s Top 25 Party Schools in America, a dubious distinction if you are looking for more than a degree in hangovers. One issue with deliberately attending a party school or turning your dorm into the campus nightclub is this: if you fail your freshman classes because you are busy partying, it’s really difficult to overcome that reputation and lower GPA. I cannot count the number of university students I have met who blew their grades the first semester or two and now have a huge debt, a dismal GPA, and must retake a lot of those classes (which the university charges you to retake).

2. College ROI

Knowing why you are attending college and what you plan to get from it can determine if you want to go and how much you are willing to pay. 

ROI stands for Return on Investment. ROI is a way to determine if your future plans are worth the investment that you plan to make or have made. Businesses do ROI evaluations regularly. There are several ways to look at ROI when it comes to choosing a college. One is will the expense of college be exceeded by what you will make in your major? Does the expense include living expenses or only tuition and books? Is it worth taking on potentially huge debt? How much does personal satisfaction and improvement count? Will taking on debt to get education result in lifting a family from a tradition of poverty?

3. Choosing a Major

Your choice of college major can also have a big impact on your current and future finances.

Your major determines your future… sort of.

Majors change. You might start college with a clear goal and then discover a new career path. Or you may have no idea what you want to do. That’s ok! Take advantage of the general education classes to discover new interests and talents. Focus on the general education courses first. These usually transfer easily so getting them out of the way allows you to go to a less expensive school first and then go to a more expensive one to get your major classes completed.

There is also a big difference in how much different majors cost. Majors with a practicum, like dental hygiene, are far more expensive in terms of textbooks and fees, than are classes that require labs (usually the hard sciences), than are non-lab majors such as English Literature.

Some degrees do not pay as well in the long run and you may have to decide between choosing a college major for the love or the money. For instance, my college student is a Fine Arts major. This is not a particularly well-paying career unless you are extraordinarily lucky. They were considering attending a dedicated art school. After realizing that the cost was going to be prohibitive compared with their likely income, they chose to attend a cheaper university. In speaking with art professors, they pointed out that the degree from the expensive art school did not guarantee work, but talent did and to focus on improving skills and becoming well rounded. 

As of 2021, the five highest-paying majors are:

• computer science
• electrical engineering
• mechanical engineering
• chemical engineering
• industrial engineering

The lowest paying majors depend on what source you check but are generally those focused on social services like education. Does that mean you should only choose to major in the STEM field? The answer is no for many reasons. One is that STEM is not for everyone. Not all STEM majors pay. As a STEM major, I was up against people with master’s degrees vying for the same low-paying jobs. Plus, we need teachers, social workers, and artists – those at the lowest end of earning. If you want to major in a lower-paying major, you may want to choose a college on the less expensive end or be very careful taking out loans. 

Once you have narrowed down your choices of colleges to apply to, the spending begins. If you have limited application funds, be selective because those $25 and up application fees add up quickly. 

4. What You are Buying

Take the time to understand exactly what your total expenses will be – including tuition, room and board, fees, etc.

Outside of buying a house, your college education is one of the most expensive actions you will take. In 2020-2021, the average cost to attend an in-state public college was $25,890 and $52,500 for a private school. The most expensive school in the US was the University of Chicago, coming in at $81,531 per year. That is a huge amount for one year, let alone the $326,124 that four years is going to cost. Better have either a huge trust fund or a heck of a job waiting!

The sad reality is many people have acquired such crippling levels of debt going to college that their future is effectively mortgaged. In addition to tuition, you will also pay fees, room and board, books, supplies, and other expenses.

Tuition

Tuition pays only for the courses and administration.

Tuition is charged by the university for the privilege of taking classes. It covers courses and administration of academic departments. You will pay different amounts as an undergraduate, graduate, fellow, etc. You will also pay by the number of credits you are taking.  The average annual cost of college tuition in America is $9,580, in-state and $35,720, per out-of-state student.

Tuition is based on full-time (usually 12 credits per semester) but you can take as many as you think you can handle. My recommendation is 12 or 13 credits and one PE credit every semester. This makes you safely full time, you have time to be social, and the PE class helps slow the “freshman 15” weight gain. If you drop under full-time, you will pay by the credit hour. 

The final rate is in-state versus out-of-state. This usually applies to state schools and in-state or reciprocal residents are charged less than out-of-staters. Private schools usually have a flat tuition for in- or out-of-state students. If you plan to get residency and drop your tuition, state schools can make declaring residency a bit tricky.  Get residency requirements in writing from the registrar.

Fees

Every college had a range of unavoidable fees. Always factor college expenses into your cost.

Fees are charged by colleges to cover a variety of services. These can be a one-time or per semester charge. Not all of these apply to your college, but you will see some of these:

• Orientation fees – a one-time registration fee for new students which usually covers the orientation where older students explain how college life works.
• Freshman fees – covers student support programs and services for the first year.
• Campus fees – covers a variety of services including many of the ones listed below.
• Lab fees – charged for classes that require labs, studio time, etc. Depends on class but is charged per class.
• Environment fees – helping your college go green.
• Student activity/Campus spirit fee – supports athletic and campus spirit. You may get free tickets to college sporting events (but not college theater events).
• Tech fees – accessing computers and wi-fi on campus. Usually doesn’t include printing fees.
• Printing fees – to cover any printing you may do or to cover those handouts you get in class.
• Transportation fees – for using the campus shuttle. If this is included, make sure you use the shuttle!
• Athletic fees – may be charged for you to use the gym facilities.
• Health and Wellness fees – charged for initiatives such as alcohol and drug awareness.
• Graduation/Commencement fees – charged if you want to walk in the graduation ceremony, or so you can even graduate.
• Health insurance and student health center fees – charged for you to have insurance and use the health center.
• Online course fees – for those online classes.
• Club fees – want to join a club? You may have to pay.
• Library fines – not paying your library fines means you may not graduate, and your transcript can be withheld if you transfer schools.
• Academic transcript fees – want a copy of your transcript – you’ll pay. If your university offers a deal at graduation on these, get ten or so. You will use them over your first few years out of college.

Room and Board

Whether you live at home, in the dorm, or find an apartment, your room and board are an important expense. While there are homeless students, it is not a safe or desirable way to attend college.

Living expenses is major factor when thinking about finances. College room and board costs cover your dorm room and food plan. It is usually pretty comparable to the apartment costs in the university town. I recommend living in the dorm for at least your first year. You will have instant friends, security, fun events planned by the dorm, and it’s part of the experience. You can focus on classes without worrying about finding breakfast, lunch, and dinner. Plus, it will give you something to complain about in the future.

Living in the Dorms vs. Commuting vs. Living at Home

You’ll have one of three options when you head off to college – living in the dorms, finding an apartment and commuting, and living at home and commuting. Which you pick, depends on your unique financial situation. 

There are some factors to consider in making your decision beyond just financial. 

Dorm living – you get assigned a roommate you do not know and live in a tiny room with them. What could possibly go wrong? My first roommate indicated she liked horses, so they put her with me. Turned out she liked the concept of horses, but not the reality of the smell and the 7 a.m. classes. During the course of the year, she lived on Dexatrim, candy bars, and Mountain Dew and stopped sleeping. It was a year to remember. 

On the other hand, you have instant friends because everyone is in the same boat of loneliness and confusion. Plus, you get your meals prepared for you. Sure, it is cafeteria food, but it beats cooking when you have massive assignments or finals. You are also on campus and can take advantage of all the events that are happening on campus instead of having to make the effort to get to campus.

Apartment living – you get to find random (or maybe not-so-random) people to live with and then deal with a landlord. You will have to cook your own meals, clean your apartment, and commute to school. This means planning ahead to find parking (a perennial challenge at most universities) and paying for car insurance, maintenance, and gas. You’ll also find that landlords have a bad reputation for good reasons. Another issue is that if your roommates move out, you can get stuck with the lease and the full payments for the apartment. You also may not have a great support system.

Your final option is living with a relative. This works if you are within reasonable commuting distance. You will probably save a lot of money on rent or room and board. On the other hand, one of the reasons to go to college is to grow in a relatively safe and monitored environment. That just does not really happen when you live at home. 

Books and Supplies

There are a variety of ways from outright buying to renting to borrowing textbooks. Look for the most economical methods.

As a biology major, I remember my textbooks for one semester costing more than my tuition. And in ten years, every textbook was obsolete and made a great doorstop and booster seat for my children. In this day of the internet and renting textbooks, you’ll find there are far cheaper alternatives to buying your book at the university bookstore. Back in my day, we hung up flyers advertising the books we were unloading. If you are looking for the websites with the cheapest textbooks try Amazon, eBay, Chegg, etc. Just make certain you get the correct edition. 

The Sticker Price

The sticker price is not always what you will end up paying. 

Colleges and universities state a sticker price. For most colleges, that is the total that you would pay if you paid full price. However, most people do not pay the full sticker price. Instead, scholarships and grants, housing choices, etc. can decrease the cost to attend. 

 If you want to go to an expensive school, always contact the financial aid office to find out what the actual net price could be. My art student attended a private college for their first two years. Because of some truly generous donors and scholarships, their total out-of-pocket cost was about $300 a semester not including travel costs.

5. Paying for College – Free Money

Taking time to explore financial aid options can pay big dividends. Loans are not the only way to pay for college!

There are four basic ways to pay for college. These include parental support, federal and private loans, and grants, and scholarships. Your next step in your college career is to fill out the FAFSA or Free Application for Federal Student Aid. It is required before enrolling in college and is a pain in the neck. You also get to do a FAFSA once a year!

FAFSA

Governmental form required once a year to attend most college.

The website for FAFSA is https://studentaid.gov/h/apply-for-aid/fafsa. In the FAFSA application process, you will have to declare all the money you and your parents have in your pockets and piggy banks at that very moment, or you can link it to their tax returns. It is far simpler and less aggravating to link the federal tax returns. If you are deciding on which college to apply to, the FAFSA can give you an idea of how expensive a college you can afford. Many colleges use the FAFSA results to offer work-study opportunities on campus. You may be offered grants and scholarships as part of the FAFSA application. Take advantage of these! Now that you know how much you will need to contribute, it’s time to decide how to pay for it.

The Bank of Mom and Dad

Always talk with your parents to understand what they can and will pay toward your college.

If you are fortunate enough to have parents who can pay for your college or education or if you have a college fund, you still need to think about your finances and how to allocate the money. Your parents’ circumstances may change, and you will lose access to that money. In the case of a recent graduate friend of mine, she partied so hard her first year that her father decided he was wasting his money and from that point on, she had to fund her education.

How to Ask Your Parents for Money for College

Sit your parents down and discuss what they intend to pay for. Will they cover tuition only? Will they give you an allowance? Are you expected to get a job? Are your room and board covered only if you live on campus? How is paying for you affecting their future? Are they taking out loans for you? Are you expected to repay the money? Write it down so that everyone can see what they are agreeing to. Verbal communication can lead to misunderstandings between mouth and ear. Putting it in writing eliminates that problem.

Scholarships

Make finding scholarships a part-time job and apply for any for which you are eligible.

There are an almost infinite variety of scholarships available. Not all require demonstrated financial need and many are strictly merit-based. The trick is finding and applying for them. Scholarships may be applied to your college cost or given to you outright. You can be taxed for scholarship money, so keep good records that indicate that you spent the money on qualified education expenses (more later). Scholarships are free and do not require repayment – they are gifts. 

Be aware that there are scholarship scams out there. You are giving up personal data so think before you apply for sketchy or too-good-to-be-true offers.

Grants

Grants are similar to scholarships and should be pursued. Always understand the conditions.

College grants and scholarships are similar but grants tend to be need-based. Grants do not require repayment although some come with requirements which if not met can result in repayment. You can find federal, state, and college grants.

Federal grants include:

• Pell Grant – these are based on financial need and cost of attendance but were capped at $6,495 in 2021, although it may increase. These are awarded first-come, first-served, so apply early! If you get a Pell Grant, use it ONLY for tuition and related expenses. Otherwise, you may end up paying taxes on it. Keep track of all your expenses so that you can prove them to the IRS.
• Federal Supplemental Education Opportunity Grant (FSEOG) – while federal money, these are administered by the specific college/university. Since not all schools participate, talk to the financial aid office.
• Teacher Education Assistance for College and Higher Education Grant (TEACH) – is offered to education degree students. This grant requires you to work in a high-need field or at a low-income school for at least four years in your first eight-year period after graduation. Otherwise, you are required to repay the loan with interest.
• The Iraq and Afghanistan Service Grant – to qualify, one of your parents or guardians died while serving in Iraq or Afghanistan after Sept. 11, 2001; you were younger than 24 when they died, and you have a financial need.

State grants are administered by each state, commonwealth, or territory. To find out if your state offers grants and the requirements, start on the US Department of Education website at https://www2.ed.gov/about/contacts/state/index.html. You may have to fill out a form in addition to the FAFSA.

How to Find Scholarships and Grants

If you are looking for scholarships and grants, start with reputable websites and organizations. Currently, there are not a lot of reported scams, be assured that where you are giving away personal information, someone will be trying to figure out how to get you to give up your data. Here are some places to look for scholarships and grants:

• Your college will have specific scholarships available for use at their institution. Investigate and apply for all you are eligible. The financial aid office will know where to look or who to talk to. 
• Local service and social organizations like Rotary, Kiwanis, PEO, and the Elks may have scholarships to give away. Find and ask a member. If college is a few years away, consider joining junior divisions of service organizations and working with the group.
• Create a profile on scholarships.com and other sites. Make finding scholarships a part-time job and apply for one or more a week.
• Spend time looking for scholarships on the US Department of Labor’s website at https://www.careeronestop.org/toolkit/training/find-scholarships.aspx

Not all scholarships and grants are needs-based. Some are based on the original donor’s interests. I remember coming across a scholarship for a red-headed person who wanted to learn to fly and was attending my specific university. Granted, that is a pretty narrow set of requirements, but I’d imagine if you met them, you could learn to fly!

Make finding scholarships and grants a part-time job. Apply for all that you can. You’ll need to keep track of who gave the money, what you used it for, and when. The IRS may consider scholarship and grant money as income if you do not use it for qualified expenses. What are qualified expenses? Great question. I get a different answer every time I ask a tax accountant. The safest answer appears to be books and tuition unless it is specifically to be used for, say, room and board. 

6. Paying for College – Loans

Know exactly what you’re signing up for when you take out a loan for college. 

Before we get into federal and private loans, we need to cover loans and loan terminology first. There are two basic types of loans, secured and unsecured. Education loans are unsecured because your education can not be taken away from you. As a result, you are charged higher interest rates and your credit score will play heavily into the loan terms and amounts. I’ll discuss credit scores in greater detail, but basically, a credit score is a measure of how well you have done repaying loans in the past. The next issue is interest rates.

Interest rates are set by the federal government and then lending institutions add percentages based on your income, credit score, and other factors. The current federal interest rate is 1.75%. This means that for every $100 you borrow, you will end up paying $1.75. The current unsecured personal loan (with an excellent credit rating) at my credit union is 8.74%. That additional 7% allows the credit union to administer the loan. The worse your credit score, the more interest you will pay.

Now that you have a grasp on loan terminology, let’s enter the alligator-laden waters of federal and personal education loans.

Federal

Better interest rates and generally more flexible repayment plans.

Applying for federal financial aid means that you are borrowing money from the federal government. About 75% of students have student loans, usually federal, owe an average of $37,172, and pay $393 a month.

The biggest single issue with student loans is that they are not administered by the federal government, they are administered by private contractors who apparently have nothing in the way of federal oversight. Because these contractors make a lot of money off federal student loans, they make it as difficult as possible to pay them off.

Does that mean you should not take out federal financial aid? No. It means go in with your eyes open and your brain engaged.

The biggest plus for federal loans is the interest rate. In 2021, the interest rate begins at 2.75% for undergrads and 4.30% for graduate programs. That is considerably less than the 8.74% on a private loan quoted above. Other benefits are that you generally do not need a credit check or a co-signer, your loans are deferred until you graduate or become a part-time student, and loans have more flexible repayment plans (if you can qualify). Working in high-need fields may offer loan forgiveness.

Federal loans are either subsidized or unsubsidized. An unsubsidized loan can be used for undergraduate and graduate programs, and financial need is not needed to qualify. Your FAFSA data will indicate which type you are eligible for.

There are four types of federal student loans.

• Direct Subsidized Loans – for eligible undergraduate students who demonstrate financial need.
• Direct Unsubsidized Loans – for eligible undergraduate, graduate, and professional students, eligibility not based on financial need.
• Direct PLUS Loans – for graduate or professional students and parents of dependent undergraduate students to pay for education expenses not covered by other financial aid. Requires a credit check to qualify.
• Direct Consolidation Loans – rolls all eligible federal student loans into a single loan with a single loan servicer.

Private Loans

Less flexibility but possibly better loan management companies. 

Your final option to pay for school is a private loan from a bank, credit union, or other lender. The main issues with private loans are that the interest rates are generally higher than federal loans, you need a credit check, repayment starts immediately, and there are not usually repayment plans. Take out personal loans only after great thought and deliberation.

Co-signing a Loan

Occasionally, you may be asked to cosign a loan. When you co-sign a loan, both you and the other signer are now responsible for the loan repayment. Let’s say you co-sign an educational loan with your parents. If you fail to repay the loan, your parents are now responsible for the amount. If neither of you repays the loan, both your credit scores are damaged. 

In another scenario, you cosign for a cell phone for your boyfriend/girlfriend. You break up, they take the phone and stop paying the bill. You are now responsible for the bill. And you may not have any recourse except small claims court to get your money back. And your credit score is still damaged.

ONLY cosign after thinking carefully about it.

• Can you afford the payments if the other person skips on the bill?
• Can your parents repay the loan if you skip out?
• Do not cosign on a loan with someone who is financially irresponsible.
• They will NOT be more careful with your money than they are with their own.

Should You Take Out Loans for College? 

Pros

• Get an education that you may not be able to pay for upfront
• Federal loans have an excellent interest rate
• Federal loans have delayed payment and delayed interest accrual
• Degree could make a huge difference in your life – especially if you come from poverty, single parent, marginalized communities

Cons

• Debt but not the degree
• Private loans have a higher interest rate
• Private loans must be repaid while still in college 
• Could stop you from buying a house, car, etc.

7. Summing It Up

Before we move onto personal finances, budgeting, and other adulting concepts, let’s sum up what we’ve discussed and how to make a decision.

Filling out this table should make it abundantly clear what your best option is. Remember that you can get estimates from FAFSA based on the colleges of your choice. 

I love the idea of a worksheet! We can have a designer make a convenient printable download. 

I have semi-randomly chosen three colleges and filled out the form for you using averages and do my best to compare apples to apples! I assumed an average course fee, the lowest end room and full meal plan, and average expenditure on books. You are not average, so yours may be different.

Continue Reading the Rest of Our Series:

• What Every College Student Should Know About Finances Part 2: Financial Concepts
• What Every College Student Should Know About Finances Part 3: Spending Your College Money
• What Every College Student Should Know About Finances Part 4: Legal Concerns

Other Articles of Interest:

• College vs. University
• Best Scholarship Websites
• Highest Paying College Majors
• What is a Bachelor’s Degree?
• Best Future Careers
• How Long Does it Take to Get an Associate Degree?