When Trying to Finance Higher Education, What is the Best Order to Look for Funding Sources?

What is the Best Order to Look for Funding Sources

When trying to finance higher education, what is the best order to look for funding sources? This is an important question that we see often. Just because you qualify for a high-interest loan, should you take that first or explore other options?

A college education is very important today. Unlike in the past when degrees were only required for high-level jobs, today even a basic entry-level job is likely to require some degree level. Unfortunately, the increasing demand for college degrees has come at a time when the cost of a college education is continuing to rise every year. The cost of a college education can range anywhere from $5,000 per year at a private or community college to $35000 or more at a private college or university.

Earning a degree in higher education typically requires earning at least a bachelor’s degree, which takes four years to complete. If you’re in college for four years, you can count on paying for your college education for at least four years. Luckily for many students, there are a variety of higher education funding sources available to higher education students. These include financial aid in the form of grants or scholarships, federal student loans, and private loans.

Why a Higher Education Degree is (Still) Important

Higher education or post-secondary education degree is very important not just to individual students but for our nation as a whole. As the economy continues to grow, so will the need for educated and qualified workers. Georgetown University’s Center on Education and the Workforce indicate that a post-secondary education degree would be required for almost 65 percent of the jobs by 2020. This bodes well for the individuals who have the required degree.

Employers typically choose applicants that have a higher education or secondary degree. Not only do degree holders find more employment opportunities available to them, but they also have the potential to earn higher wages. The U.S. Bureau of Labor Statistics (BLS), reports that candidates with bachelor’s degrees saw an average weekly wage of about $1,300, while those with no degree earned about $780.

The annual difference between the two is about $27,000, which is a substantial amount. The biggest problem with this is that the cost of earning a bachelor’s degree costs a lot of money with the price increasing every year. This is one of the main reasons why students rely on as many funding sources as they can find. The less money they have to pay back, the more income they’ll be able to retain.

The Best Order to Look for Higher Education Funding Sources

The good news to potential students is that there are a few different higher education funding sources available to them. The student will typically have to apply for each type of funding to determine if he or she is eligible to receive a specific type of funding and if they are eligible, for what amount.

Financial aid is generally determined by financial need or merit or both. Although students may get financial help from many sources, there are basically two types of financial aid. These are gift aid or self-help aid.

1. Gift Aid Financial Aid

Gift aid financial aid is money the student does not have to pay back or earn through work. Gift aid may come in the form of tuition waivers, scholarships, grants, and education tax benefits. While people often use the terms scholarships and grants interchangeably, there are differences in the selection and eligibility criteria.

Grants, such as the Federal Supplemental Educational Opportunity Grant or the Federal Pell Grant, are based on the student’s financial need. Students may also be eligible for state grants like the TEACH Grant or the Cal Grant, just to name a couple.

Scholarships, on the other hand, are based on academic, merit, or a specific talent. For instance, an artistic student may get a scholarship for a specific art school. Students interested in sports may get a sports scholarship to a certain college that offers that specific sports program. Another type of financial aid is education tax benefits, which are available to students that find their federal income tax.

There are a few different types of tax credits available to students from the government, including Lifetime Learning Tax Credit, Tuition & Fees Deduction, Student Loan Interest Deduction, and American Opportunity Tax Credit. These are all types of self-help financial aid.

2. Self-Help Aid – FAFSA

You may have heard of the FAFSA, which stands for the Free Application for Federal Student Aid. The FAFSA is a completely free online application that does not look at your credit score. However, it does look at your taxes or your parents’ taxes if you are under a certain age. The application does this to figure out your Expected Family Contribution, or EFC. This number will determine if you qualify for a Pell Grant, which is money you get from the government that you do not need to pay back, assuming you finish your credits. It will also determine which portion of your student loans will be subsidized or unsubsidized, which impacts how much interest the loans will earn while in school.

Self-help financial aid is money the student must pay back or earn through his or her employment. Student employment (work study) and student loans (financial aid) are the two most common types of self-help financial aid. Student loans not only have to be paid back, but students are also required to pay interest on the loans. Some common student loans are Federal Direct PLUS Loan, Federal Direct Stafford Loan, Parent PLUS, and Grad PLUS.

Graduates with financial aid debts may choose to get a Federal Direct Consolidation Loan to pay off all their student loan debt and have one monthly payment rather than a couple. They may also refinance with a local bank if the interest rates are lower. Lower interest rates can mean smaller monthly payments and a shorter loan term.

However, federal education loans come with some benefits, such as generous deferments, federal loan forgiveness, and various income-based repayment plans. For these reasons, students are advised to not pay off a federal education loan with a private student loan.

Other types of self-help aid include:

  • Employer-paid tuition assistance
  • College savings plans
  • Loan forgiveness
  • Military student aid
  • Student loan repayment assistance programs
  • GI Bill
  • ROTC Scholarships
  • Tuition Assistance
  • Funds from private or community-based organizations

3. Private Loans and Credit Cards

Private loans and credit cards are a way to meet your financial obligations without having to bring in your own funds. Private lenders like SoFi, Ascent, Sallie Mae and College Ave all have private students loans with variable interest rates and require a minimum credit score to apply.

These loans may require a co-signer, typically a parent, with a more established credit history. Since these loans are private loans and are not through the government, they don’t qualify for any payment moratoriums like the ones that were rolled out during the Covid-19 pandemic.

With so many higher education funding sources available to students it’s no surprise that students would wonder what is the best order to look for funding sources.

What is the Best Order to Look for Funding Sources?

When looking into financial assistance for college, the biggest question many students may have is, “What is the best order to look for funding sources?” This is a very important question as is the answer. By knowing the order in which you should get your higher education sources, you can save thousands of dollars.

Students choosing their college funding sources should crunch numbers and look at the bottom figure of what it will cost for college, and this includes tuition, books, supplies, transportation, lodging, etc. You’ll want to pay as little as possible. When applying for aid, you should first apply for gift aids like scholarships and grants. You don’t have to pay these back, and you are not charged interest on them.

If your college expenses come to about $20,000, you’ll want to be getting this aid as free and not something that needs to be paid back. Apply for as many scholarships as possible because you can get more than one scholarship and grant.

One of the many advantages of scholarships is that they are based on the student’s merits and academic achievements and not on income. Some types of financial aid are based on you and your family’s income. Even if you no longer will be living with them, their income can decrease the amount of financial aid you could receive.

We’ve made quite a few scholarship lists here, usually by major, but some of the scholarships will work for anyone, so check these out:

Nursing Scholarships
HR Scholarships
CSI Scholarships
Psychology Scholarships
Christian Scholarships

The more you can get, the more you’ll be able to decrease your student debt. Once you’ve heard back from the organizations offering grants and scholarships, you’ll be in a better position to know how much additional money you’ll need to meet your college financial needs.

Then, and only then, should you apply for other types of financial aid. These might include private loans or credits cars. By getting the bulk of your financial aid through gift aids, you’re decreasing the amount of aid you will have to repay.

Read more in our other article about Paying for College for more info about financial aid and other paths to pay for college.