College Financial Planning – An Overview

Good College Financial Planning is the Bedrock of a Successful College Experience

College is a formative experience. You’ll meet new people, learn new things about the world and your place in it, try new foods in an on-campus eatery, and maybe experiment with a new language or personal style. For many, college is also the first time that they have to manage their expenses, pay bills, and plan out a budget. Regardless of whether you attend a state school or a private school, college is expensive and, without proper planning, you may find yourself short of money.

In order to get the most out of your education and complete your degree with minimal debt, college financial planning is indispensable. It is important that you begin your college career with a good understanding of your various sources of financial aid and other sources of income, and that you have a plan for how to meet your various expenses.

Understand Your Financial Aid Package 

Once you receive acceptance from a school, you will receive an award letter. Along with the cost of attendance and tuition, this letter will display your financial aid package, the total amount of financial aid as well the sources of this aid: the federal government, the state government, and/or the institution. It is essential for college financial planning that you thoroughly understand what is listed on your award letter. 

If you accept your enrollment, you will have to accept/decline each of your awards. You may also find that some of your aid involves certain conditions to be met, and some of your aid may change (for better or worse) as you enter the next year. Your awards may raise questions that can be resolved by the school’s financial aid office. In some circumstances, you can even appeal your financial aid. If you are going to plan for the duration of college, you will want to understand where your aid is coming from.

Your financial aid package can be divided into these categories:

• Federal aid – If you have submitted the FAFSA, you may receive federal aid based on the financial information you provided. This could include a Federal Pell Grant, a yearly reward that does not need to be paid back. (Please view eligibility requirements for this grant, as many scholarships require Pell Grant eligibility). A similar award is the Federal Supplemental Educational Opportunity Grant, which is given to schools to be distributed to students with high demonstrated financial need. It is important to note that undocumented students cannot qualify for any federal aid.
• State aid – If you were accepted by an institution in your state and submitted your state’s financial aid application, you may receive additional aid. State governments offer a variety of scholarships and grants, and it is worth exploring your state’s official website on financial aid or education to see if you are eligible.
• Institutional grants or scholarships – Schools will often offer financial aid of their own, which does not need to be paid back. This sort of funding could be based on demonstrated financial aid or merit, including academic or personal achievements. This may or may not be renewable aid, so be sure to check the terms of the scholarship. These scholarships or grants often are determined by the information you provided on the CSS Profile, and so you may not need to submit anything besides your college application. Some institution-specific grants or scholarships may require an additional application.
• Your award letter may also list outside scholarships that you have reported to the school. These scholarships are not given to you directly from your school. This category includes local, regional, and national scholarships from individuals or organizations. 

You will not need to worry about these kinds of aid. They are direct financial support that you do not need to pay back.

Other Items on Your Award Letter

The difference between this amount of financial aid and the total cost of attendance is the amount of money that you are responsible for in order to afford your education. Your award letter may also include ways you can make up for this gap. Remember, you are accepted into an institution because they want you (especially if your decision is binding). The cost of attendance on your award letter is not a bill. Your award letter is telling you how you might make it, mostly based on information from your FAFSA and CSS profile. You may see the following on your award letter:

• Parent or guardian contribution – An estimate of the amount your parents or guardians are able to contribute towards your education.

• Federal Loans – Your award letter may list loans for which you are eligible. There are many names that might preface the kinds of loans listed below, so be sure to research the particulars of whatever you have been offered.
  • Subsidized loans are those that do not accrue interest while you are enrolled full-time in school.
  • Unsubsidized loans are those that begin to accrue interest while you are enrolled in school.
  • Parent Plus loans are loans offered to your parent(s) in order to help them contribute to your educational funds

• Work-study – You may be eligible for the Federal Work-Study Program (FWS). Should this appear on your award letter, the amount listed is merely an estimate of what you might be able to pay towards your education if you were working a part-time on-campus job. Work-study eligibility makes you more employable for campus jobs because your employer is basically paid to hire you.

• Student contribution – An estimate of what you are able to contribute directly.

All of these are estimates of what the institution thinks you will need to afford your education. You should research offers for loans and work-study and decide on their feasibility. After these considerations, you can estimate the remaining cost.

Your Cost of Attendance

Aside from telling you where aid comes from and offering ways of affording the cost of attendance, your award letter will also break down this cost. Just like how you should know your sources of aid, you should pay attention to the expenses that make up the cost of attendance for your college financial planning. 

The cost of attendance does not only include what you owe the school directly but also estimates of other expenses needed for college. Your cost of attendance may not actually be what is listed on your financial aid package. Costs listed for school supplies, books, personal expenses, and travel expenses are estimates of what you might spend each year. They are intended to assist your college financial planning and make an informed decision as to whether you can afford to attend. 

These expenses may be substantially lower than what is listed. For example, most students buy used books, instead of purchasing them brand new from the university bookstore (where they are overpriced). For used textbooks, check out these websites: AbeBooks, Chegg, Thriftbooks, or Amazon.  You may also find upperclassmen who are willing to lend you textbooks or sell them at a far cheaper price.

Expenses that you owe directly to the school might change based on what services you opt into. This is often the case for room and board and dining charges. You should figure out whether or not it may be more affordable to live on-campus and dine under a meal plan rather than on your own expenses. Make sure to check your institution’s dining policy and residency requirement, because you may have multiple options. Note, you may be expected to live on-campus for a certain period of time, but it is never too early to keep these concerns in mind. For example, if you are receiving financial aid for room and board, you might be eligible to receive aid for living off-campus later on.

In any case, you will have to ask yourself a variety of questions about additional expenses: How much does it cost to travel to and from campus? How often will I return home? How much money do I want to set aside for spending each week? etc. You may find it helpful to map out which expenses are recurring (e.g., monthly bills or weekly personal expenses) and which are larger and less frequent (e.g., tuition payments). When estimating these expenses, it is better to estimate on the higher side since you never know what surprise expenses may arise. Visualizing your expenses this way will help you plan ahead for months with higher payment demands.

Covering Your Remaining Expenses

Now that you have an idea of the extent of your expenses, you should strategize how to cover the outside of any assistance you may receive from family members. While in college, you may meet your expenses by:

• Working a job. If you work full-time during the summer, this can be a great way to save up money for the coming school year. Additionally, many schools have on-campus jobs available to students at minimum wage during the school year. Some schools have their own job boards, and many employers use mailing lists hosted by schools to advertise positions. You might find more employment opportunities related to your interests on a mailing list for your major. To keep up with these opportunities, sign up for mailing lists and look into your school’s career planning services.
• Applying for scholarships. Even after you enter college, there are scholarship opportunities year-round, offered inside and outside your institution. As you develop a better picture of your academic or career path, you may become eligible for more scholarship opportunities than before.
• Taking out loans. If you still have remaining expenses, you might consider taking out loans. If you are able to choose between subsidized and unsubsidized loans through the federal government, choose subsidized loans so that you do not have to worry about interest accruing on your loan until six months after you graduate.

Concluding Thoughts on Successful College Financial Planning

Some students insist on working part-time when they’re in school and full-time each summer in order to minimize the number of loans they take out throughout their undergraduate career. This is, however, not necessarily the best decision for every student. College is overwhelming at first and always busy. Once you start managing your time, you may find that it is more desirable to dedicate more time to other experiences.

As of 2019, the average amount of loan debt for those who borrowed loans during their college career hovers above $28,000. This is a large amount of money for many of us. About a third of borrowers who graduate pay off their loan debt and any interest accrued within 12 years of graduating. Are these acceptable statistics to you? Or are they incredibly intimidating? It is up to you to decide how to best spend your time in college.

It is important to remember that opportunities such as participating in clubs, volunteering, conducting research, working as an intern, studying abroad, and other experiences can be just as valuable as a paycheck. We are inclined to make a distinction between short-term versus long term financial planning, but it is these experiences that build out a resume, demonstrate leadership and commitment to community betterment, showcase professional skills and experiences, and suggest that one is a well-rounded individual ready to thrive in an increasingly multicultural and interconnected world. Having a strong resume will certainly help you secure a job down the road. 

You now have some tools to create your college financial plan. Financial decisions made while in college can affect you for decades to come, so do not treat them lightly. Be intentional about how you spend your time and money and, most importantly, make the most of what your education offers.

If you’d like to map out your financial plan and figure out your budget, download our College Financial Planning Sheet.