4 Ways to Pay for College – Parents, That’s All There Are

Published by Wendy Nelson on

Parents, there are really only 4 ways to pay for college. There are no big secrets when it comes to paying for college. It really comes down to how much of it will come out of your pockets and your student’s pockets.

For most families, paying for college requires a mix of more than one of these ways.

4 Ways to Pay for Collegepiggy bank and money

#1 – Out of Pocket

Paying for college out of pocket would include the following sources:

  • Your savings
  • Your student’s own savings
  • Gifts from family and friends
  • Your monthly cash flow
  • Your student’s monthly earnings

This is the source we want to minimize, especially when it comes to money not specifically earmarked for college. Most families who have set aside college savings do not have enough saved to cover the full price of 4 years (or more) of college for each student. In addition, most families would struggle to pay for college through monthly cash flow alone. This means we must come up with ways to minimize what needs to be paid out of pocket. There are basically three ways to do this:

  1. Find a college with a low enough “sticker” price that it can be paid through savings and cash flow
  2. Find a college that will offer your family a low enough “net price” that you can pay through savings and cash flow (this will be dependent on need-based aid and/or merit-based aid)
  3. Delay the out-of-pocket payments through the use of student loans (doesn’t truly minimize what is paid out of pocket – just postpones it)

Many families will use a combination of these 3 ways in order to make college affordable each year. First, let’s talk about how to reduce the “net price” of college through need-based aid and merit-based aid. All money you receive to help pay for college, that isn’t a gift from a family member or friend, falls into the categories of need-based aid and merit-based aid (sometimes a combination of both).

#2 – Need-Based Aid

Two things come into play here – The government’s assessment of what you can afford to pay for college and the college’s own assessment of what you can afford.

The government’s assessment is done through the Free Application for Federal Student Aid (FAFSA).

If the government’s assessment of what you can pay is low enough, you will qualify for federal need-based aid including subsidized student loans (more to come later on these), the federal work-study program (your student gets a job, makes money, and pays towards college out of pocket), and governmental grants (like the Pell grant).

Depending on your state, you may also be eligible for state need-based aid. Check the National Association of Student Financial Aid Administrators site for links to what your state offers.

Some colleges just use the FAFSA to assess what institutional need-based aid you qualify for (aka need-based aid offered directly by the college). Other colleges have their own methodology to determine what need-based aid you qualify for.

Either way, the college website will have a Net Price Calculator that you can use to estimate your student’s eligibility for need-based aid from that college.

If you qualify for need-based aid, you are going to want to maximize your chances for it by targeting the right schools. How do you do that? Start with the process I lay out in this post: Will We Qualify for Need-Based Financial Aid? There are some great links in this post that will take you to other helpful resources so you can learn more about need-based aid.

#3 – Merit-Based Aid

The largest source of merit-based scholarships are the colleges themselves. Luckily, merit-based aid is not income dependent so any student can qualify. For those families who will not qualify for need-based aid, merit-based aid is the key to reducing their student’s net price for college.

How will you know what schools offer the most merit-based aid? And more specifically, how will you know what schools will offer YOUR student the most merit-based aid? I will tackle these two questions independently.

Finding Schools That Offer the Most Merit-Based Aid

Here are the two best ways I have found to find the schools that offer the most merit aid in general

  • Collegedata.com – For each school you look at on this site, you can find two helpful merit aid statistics: 1) The percentage of students with financial need who are offered merit aid, 2) The percentage of students without financial need who are offered merit aid. Additionally, for this second group of students who are judged by the college not to have financial need, you will see the average amount of merit aid they receive.

  • DIY College Rankings Spreadsheet – This is a tool that you can download and use throughout your college search. It pulls in all the same need-based and merit-based statistics in a spreadsheet format that will allow you to quickly and easily sort and filter schools to find the ones that offer the highest percentage and amounts of merit-based aid.

Finding Schools that Will Offer Your Student the Most Merit-Based Aid

Averages are great. They give us an idea of a range to expect. For example, if the average merit award for freshman without need at Beloit College is $25,897, that means about half of the students without need that received merit aid got less than that amount and about half of that group got more than that amount.

What you really want to know is how much your student will be offered in merit-based aid.

How do you find that information?

There are several ways and they really depend on how open you are to finding the schools that will offer your student the largest merit scholarships.

Finding Merit Scholarships at Schools You Are Already Familiar With

  1. Start by going to the college’s website to find the Net Price Calculator. You can type “net price calculator” in the search field on the school’s home page. You will want to know if the Net Price Calculator includes merit-based aid (the best ones do). This isn’t always clear until you start entering your information in the calculator. If the calculator includes merit-based aid, it will ask for at least your student’s GPA, probably their ACT/SAT scores, and maybe even their high school class rank. In the example of Beloit College, it tells you before you begin that you need your student’s GPA. Using a Net Price Calculator like this one will give you an estimate of what the school will give your student in merit-based aid. Remember, this is only an estimate and will only take into account the information it asked for to estimate this (just GPA in the Beloit College example). You will still want to visit the Merit Scholarship pages (see #2 below) to find out if there are other types of merit scholarships your student may qualify for.
  2. If the Net Price Calculator does not include merit-based aid, you will need to find the school’s listing of Merit Scholarships. This will either be under the Admissions section of the school’s website or the Financial Aid section. You can usually find the right page by typing “merit scholarships” in the search field. However, sometimes schools spread the merit scholarships among multiple pages so you want to make sure you have found everything (tip: sometimes departmental scholarships are listed within the academic pages for the different majors or schools within the college). Sticking with the Beloit College example, if you go to their Merit-Based Scholarships page, you will see a bunch of different scholarships with different criteria (information included below is based on what I am seeing on 12-7-2018):
  • Stateline Scholarships – $32,000 per year (for residents of specific WI and IL counties)
  • Presidential Scholarships – Up to $32,000 per year (based on exceptional academic achievement)
  • Wisconsin Distinguished Scholars – Up to $32,000 per year (Wisconsin residents with 3.5 or higher GPA)
  • Eaton Scholarships – Up to $30,000 per year (based on outstanding academic success and significant leadership qualities)
  • Dean’s Scholarships – Up to $27,000 per year (based on “exceptional promise for success”)
  • Music Scholarships – Up to $5,000 per year (based on application, audition and instructor recommendation)
  • Founders Scholarships – $5,000 per year (National Merit Finalists)

Beloit College’s current yearly tuition (2018-2019 academic year) is $49,564 so a merit scholarship of $27,000 –  $32,000 is very significant. A $32,000 scholarship would bring the tuition down to $17,564. This is about the same as the in-state tuition rate at the University of Illinois Urbana Champaign and is extremely competitive against other private colleges with very good merit scholarships.

Some of these merit scholarships have pretty non-specific qualifications like “exceptional academic achievement”, “significant leaderships qualities” and “exceptional promise for success”. How will you know if your student will be considered for any of these? Look down below for my sub-section on Assessing Your Student’s Chances.

Finding Schools You Aren’t Already Familiar With That Will Offer Your Student Great Merit Scholarships

In an earlier section, we talked about how to identify schools that offer great merit scholarship in general by looking at the percentage of students without need awarded merit aid and the average merit aid amounts awarded to students without need. That’s a good place to start to dig in further to see if the schools that are generous with merit aid overall will be good options for your student.

Sometimes schools that don’t show up as overly generous overall will offer your student great merit scholarships. A friend of mine likes to say, “The college that will offer you the best deal is a school you’ve never heard of.”

In order to find these great merit scholarships, you will need an easy way to look up the merit scholarships offered by colleges without needing to go to each college’s website.

In 2015, I started a mission to list out all of the merit scholarships offered by colleges in an easily searchable format. I created the Merit Scholarship List website. You can search by scholarship type, scholarship value (amount categories), minimum requirements (for scholarships that have specific minimum GPA and/or ACT/SAT requirements), look up specific schools, and more.

You can search the following Scholarship Value categories:

  • Up to Full Ride and More
  • Up to Full Tuition and More
  • Half Tuition and More
  • Less Than Half Tuition
  • Out of State Tuition Waiver
  • Room and/or Board
  • Varies (the school doesn’t list an amount or range of amounts awarded for these scholarships)

You can search the following Scholarship Types:

  • Automatic (all students who meet the stated criteria are automatically awarded the scholarship)
  • Competitive (students who meet stated criteria compete for a limited number of scholarships)
  • Talent (mostly awarded for art, theater, dance, and music)
  • National Merit/Achievement (awarded to National Merit, National Achievement and/or Hispanic Recognition finalists, semi-finalists or “commended” students)

You can also search by percentage of merit aid offered to students without need and/or average amount of merit aid offered to students without need and then drill down to the scholarships actually offered by the schools. This eliminates the need to do this separately through a different tool as described in the section above.

Meritscholarshiplist.com is a subscription based site, offering both monthly and yearly subscription options.

Here too, you will want to be able to assess your student’s chances of being awarded the great scholarships you find. How do you do that? Read on.

Assessing Your Student’s Chances for Merit Scholarships:

  1. Compare your student’s ACT and/or SAT score to the school’s mid-50% range (can be found on collegedata.com or other search sites). Students above the mid-50% range have a greater chance of getting merit scholarships because schools are always looking to attract top students.
  2. The same applies for median GPA. If your student’s GPA is above the school’s median GPA for incoming freshmen, they will have a greater chance of being awarded merit scholarships.
  3. Assess your student’s level of involvement – the more leadership experience your student has, the more school activities and clubs they have played a significant role in, the more community service projects they have taken on, and/or other unique defining achievements or experiences they have, the greater their chances for merit aid.
  4. Ask the admissions counselor or financial aid office – It never hurts for your student to reach out, say they saw some scholarships listed on the school website and would like to assess their chances. You can do this together with your student when you go on a campus visit and meet with Admissions.

#4 – Student Loans

The last method for paying for college is student loans. This is a method you should minimize or hopefully avoid. I realize that some families will have to lean on student loans after exhausting possibilities for need-based aid and merit-based aid when they can’t cover the remaining cost out of pocket.

Ways to Minimize the Need for Student Loans

  1. Select a school with a low sticker price – in-state public colleges, out-of-state public colleges with reciprocity agreements will offer the lowest 4-year sticker prices. Also, community colleges with guaranteed transfer programs are a great option to really minimize the cost of the first 2 years and keep your overall 4-year cost down.
  2. Select a school that will offer your family the largest amount of need-based aid – Use the Net Price Calculators, as described earlier in this post, to determine this. The most expensive schools, especially those that say they meet 100% of need, will be the colleges most likely to offer the most need-based aid.
  3. Maximize your student’s merit-based aid – Using the methods described earlier in this post, find the schools most likely to offer your student the largest merit scholarships.
  4. Do your homework across all of these categories and select the school that is offering your family the lowest Net Price – Of course you need to consider the overall “value” for your student by balancing cost against opportunity. Sending your student to a school that will not set them up for future success will not provide good value in the long run. However, the thinking that students must attend the most prestigious schools in order to succeed, no matter what the cost, is just not accurate. I agree with this recent article, “It’s Time to Tell Your Kids It Doesn’t Matter Where They Go to College“, but often no amount of trying to convince will keep some parents from taking out huge loans that become a hardship later on.


There Really Are Only 4 Ways to Pay for College

Some families will be lucky enough not to pay anything out of pocket. Their students will either receive full ride merit scholarships, or they will be talented enough to receive full ride talent or athletic scholarships. There are also families who will be offered a full need-based grant or scholarship. I would not use the term “lucky” to describe these families as they face many financial hardships, but hopefully this will allow their student the opportunity to be set up for future success without any accompanying financial burden.