Paying For College

Education is hugely important for the average individual. Nearly, 15 million Americas are enrolled in degree granting institutions of higher education. Having a bachelors degree results in less unemployment and higher average salaries (clicky), so many Americans are justifiably concerned about paying for college.

Now, according to Jane Bryant Quinn, there are at least five ways to cover your higher education costs.

1) Savings and Investments: The main idea here is to pay your expenses from savings or investments. Since having a bachelors degree gives you about $20,000 more in annual salary relative to just a high school degree, it can be better to use your assets rather than borrow to pay for school. Sometimes its hard to intuitively determine this trade off, so you could use some financial calculators to compare expected value of your investments versus the expected value of your salary after graduation.

2) Current Income: Spending income from your job or other sources reduces the amount of money you’ll have on hand, but at least it prevents the long term drain on your cash that loans can result in.

3) Loans: Jane Bryant Quinn argues that student loans are the most costly source of funds. This is due to the fact that your loan interest can take a long time to pay off. While Quinn is often correct, we dinks disagree on this particular point. Of all types of debt, student loans can be the least onerous. For example, student loans are currently tax advantaged under the U.S. internal revenue code, some loan programs have subsidized interest and some types of jobs offer loan repayment programs (e.g. military and public service occupations). Quickly put, its better to avoid debt, but student loans are an okay form of debt.

4) Work: Yes, work. Many colleges offer work study programs. These let students earn some of their tuition by taking a job. Some schools provide jobs for any student who wants one. I am currently on an assistantship at the University of Maryland that is essentially a work study program. They can be quite handy.

5) Grants: Be under no illusions, it usually takes some effort to get a grant. In addition, free money additionally tends to go to those who have the greatest need. Also, many aid packages include a combination of low interest loans, a work study job and a modest grant. So, while the chances of getting a grant are promising, you should probably assume that grants will only pay for part of your education.

To start you off on your funding search, there are a couple of other good resources you might want to review. The WashingtonPost has a good “how to” on the topic (here), and Bankrate.com has some offbeat ideas for funding your education (here). Finally, Kiplinger has the basics. How you pay for college and what you do in your years studying can have drastic effects on your future wealth.

Best,

James