Parents’ Guide to Financial Aid: Scholarships, Grants, and Student Loans
The cost of higher education has skyrocketed, leaving many families scrambling to figure out how to afford tuition. And while investing in a 529 plan to help fund your child’s education is always a good idea, even high-income earners may wonder how they will cover costs, especially in households with multiple children. Fortunately, there are options available for financial support, but learning what they are and how to pursue them requires research, time, and effort.
Finding help with college expenses can be challenging, but the potential payoff is well worth the effort. According to CollegeBoard, the average tuition and fees for a four-year public in-state university were $10,740 in 2021, $27,560 for out-of-state residents, and $38,070 for private nonprofit four-year institutions. This doesn’t include room and board, which averages upwards of nearly $18,000. (1)
Multiply those numbers by four years, and a bachelor’s degree now runs from approximately $109,000 to $223,000—and the cost continues to rise each year. Over the past 20 years, the data shows tuition and fees alone at public four-year institutions have increased by nearly 180%, dramatically outpacing inflation. (2)
Unfortunately, rising costs are placing higher education out of reach for many American young people. And in pursuit of achieving this aspect of the American Dream, some are finding themselves in student loan debt that exceeds their ability to pay it back without significant financial strain. This is why it’s important for parents to do what they can to help their college-bound children find help paying for college.
The best thing about a grant is that it typically doesn’t need to be repaid unless a student withdraws or fails to complete a service obligation. However, most grants, such as Federal Pell Grants or Federal Supplemental Educational Opportunity Grant (FSEOG), are only available to students with exceptional financial needs. Others are available to students who fit certain criteria, such as the Iraq and Afghanistan Service Grant for children in Gold Star Families. And some are for those who agree to a particular service obligation, such as the Teacher Education Assistance for College and Higher Education (TEACH) Grant.
While most grants tend to be need-based, you may also find merit-based grants for students who demonstrate a commitment to community service, high levels of academic achievement, or remarkable leadership skills. Conduct an internet search for education grants in your state, and you may find options that meet your student’s profile.
A scholarship is a type of financial aid designed to help students cover the cost of an undergraduate degree, awarded based on merit. Like grants, scholarships do not have to be repaid. Eligibility criteria are set by the scholarship granting organization, such as the college or university, state education departments, private businesses, foundations, charities, and clubs.
Some scholarships may be awarded based on academic merit, exceptional athletic achievement, artistic talent, community service accomplishments, leadership track record, or merit-based diversity and inclusion designations for historically marginalized groups. Other scholarships are awarded as prizes for events such as essay contests, beauty pageants, oratorical contests, or robotics competitions.
You can find information about scholarships through high school guidance counselors and the college financial aid office and by doing research for yourself. Search online, check with your employer and any clubs or organizations you are a member of, look into local opportunities, and ask around. You might be surprised by what you find.
The Federal Work-Study Program is a way for students with financial needs to earn money to help pay for education expenses by working a part-time job. Unlike Pell grants, the need criteria for work-study may accommodate some middle-income families. Work-study jobs are usually community service-oriented or related to the student’s intended course of study. For example, if the student majors in psychology, they may work for a mental health facility affiliated with the school, providing administrative support.
The idea is to allow students to learn and contribute to public interest while earning at least minimum wage. Jobs may be on-campus working for the university or off-campus working for a non-profit, civic organization, or public agency.
Aid for Military Families
If either parent is a veteran or active duty or the student is planning to join the military or is currently active-duty personnel, the federal government and various nonprofit organizations offer money to cover higher education expenses.
Reserve Officers’ Training Corps (ROTC) scholarships, through the U.S. Army ROTC, Navy ROTC, and Airforce ROTC, award full and partial scholarships with various stipulations based on merit. Through the GI Bill, The Department of Veterans Affairs also offers educational benefits for veterans, widows, and dependents at select schools and job training sites.
Organizations that offer scholarships to military families include the American Legion, AMVETS (American Veterans), Paralyzed Veterans of America, and Veterans of Foreign Wars, as well as smaller nonprofits throughout the country.
Other Federal and State Aid
The federal government also offers a variety of additional financial aid programs, including educational vouchers for former foster youth, tax credits for higher education, community service awards through AmeriCorps, Department of Health and Human Services programs, the National Institutes of Health programs, and more.
State governments offer aid, such as discretionary grants awarded using a competitive process. Some states have generous higher education support programs, such as the CAL Grant for California-specific financial aid, the New York State Tuition Assistance Program (TAP), and the Georgia Hope Scholarship.
A student loan for college is money offered as part of the student’s financial aid package, and it must be paid back with interest. Federal student loans are funded by the government, and private student loans are made by another lender, such as a school, bank, credit union, or state agency. Types of federal loans for undergraduate students include Direct Subsidized and Unsubsidized Loans. Federal student loans for parents (which parents are responsible for paying back) are called Direct PLUS loans.
Federal student loans have terms and conditions set by law and come with benefits such as income-driven repayment plans and fixed interest rates. On the other hand, private loans come with terms and conditions set by the lender and tend to be more expensive than federal loans. In either case, the interest and fees are not cheap, and it’s a major commitment that should not be entered into lightly.
For many students, loans are a means to an end and a necessary evil that can’t be avoided. Gone are the days when a part-time job or even entry-level full-time job pays well enough to work one's way through college, even with grants and scholarships.
But on average, a bachelor’s degree holder earns 75% more over a lifetime than someone with only a high school diploma. While going into significant debt can make other goals, such as purchasing a home, difficult, and the media often points to billionaire dropouts like Mark Zuckerberg and Bill Gates, the data still shows that education is the best route to earning more money and building wealth over a lifetime. (3)
How to Get Financial Aid
The most important step in gaining access to grants, scholarships, loans, work-study, and other aid is for the student to apply for it through the school’s financial aid office using the Free Application for Federal Student Aid (FAFSA®).
Before completing the form, you should use the Federal Student Aid Estimator to estimate how much the student may be able to receive and what your Expected Family Contribution (EFC) will be. From that point, you can start considering various options.
Whether your student will be pursuing loans, grants, scholarships, work-study, other aid, or all of the above, the sooner you get started, the better. Many types of aid are awarded on a first-come, first-served basis, so it pays to complete the FAFSA early. (It becomes available on October 1st of the year PRIOR to enrollment.) Waiting until the last minute can mean you miss out on funds and opportunities that would have been available to your family and can be a costly mistake.
John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.