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Alternative Ways to Pay for College
As students prepare to go to college, many realize that they do not have the resources to meet the rising costs of college tuition and other related expenses. Families must also face the fact that financial aid isn't going to meet the gap between what they feel they can afford to pay and what's available to them.
There are some students who have been awarded all of the need-based aid that's available and still have a significant portion of their cost of attendance that won't be covered. Some of the reasons why many students still have costs to cover include:
the student may have applied for financial aid late;
the student may have a stepparent with considerable assets that isn't going to contribute; or
the student may be estranged from his or her parents in a situation that doesn't justify a dependency override.
Alternative loans remain the most popular method of closing the gap of unmet need with both families and aid administrators; however, additional debt is not always the best option for the student.
Statistics show that borrowing in the Stafford Loan Program has increased by $20 billion since 1990. The grant-to-loan ratio has also changed significantly. In 1990, nearly two dollars of grant aid was provided to students attending public universities for every dollar of loans borrowed. In 2000, the ratio dropped to nearly 1:1.
With rising loan debt and with students incurring credit card debt, what are the alternatives besides student borrowing? Students may consider:
serving in the military;
volunteering;
working while in school; or
many other options.
Military
Benefits of Military Service
Military service may not be the best option for every student, however, there are significant educational benefits available to students who have an interest in joining a branch of the United States Armed Forces. The information provided here is a summary of requirements published by each individual branch of the service.
Montgomery G.I. Bill (MGIB) - www.gibill.va.gov
The MGIB may provide up to 36 months of educational benefits to eligible members. MGIB benefits can be used for degree courses, certificate programs, and other educational opportunities. Typically, the benefits can be used for up to 10 years after separation from the military. Students interested in participating in the MGIB must indicate so at the time of enlistment. A new enlistee is required to contribute $100 from his or her paycheck each month for the first year of service. Upon successful completion of the first year requirements, a service member may then be "vested" in the program.
College Funds
In addition to the Montgomery G.I. Bill, each branch of the military also has a College Fund (or similarly named program for each branch). Listed below are typical program requirements.
Students must be high school graduates.
Recipients must take the Armed Services Vocational Aptitude Battery (ASVAB).
Specific job categories may be targeted.
The program may pay up to 100% (per semester hour) of the cost of college courses.
Courses and degree programs may be academic or technical.
Courses can be taken from two- or four-year institutions, on- or off-base, or by correspondence.
Military members are restricted to a maximum of $3,500 of tuition assistance per fiscal year.
For each branch of the service, there are differences in these types of programs. More details may be found through each branch's Web site.
United States Air Force - www.airforce.com
United States Army - www.army.mil
United States Marines - www.usmc.mil
United States Navy - www.navy.mil
Reserve Officer Training Corps (ROTC)
The guidelines listed here are for the Army ROTC program (www.armyrotc.com). Each branch of military service has its own ROTC program. The other branches of the military, the Air Force ROTC (www.afrotc.com) and the Navy ROTC (www.nrotc.navy.mil) (includes Marines) may have slightly different requirements.
ROTC is an elective course that students enroll in at participating colleges and universities. It is important to note that schools without an ROTC program of their own may allow their students to take ROTC courses at nearby schools that participate in the program.
ROTC courses count as electives toward a student's degree.
Students that successfully complete the ROTC courses and their degree will receive a commission as an officer in the U.S. Army.
ROTC offers hundreds of merit-based scholarships each year, some as high as $70,000, including a monthly stipend. Guidelines for the scholarships include:
- the scholarships are based on merit only;
- tuition and fees are covered;
- a book allowance is provided; and
- recipients are eligible for a tax-free stipend of a minimum of $250/month (depending on the student's academic level) for each academic month per year.
ROTC scholarships are awarded in the following categories: 4-year, 3-year, Historically Black College or University (HBCU), and Active Duty.
Each of the branches of service has its own special requirements, but generally, a high school applicant would need to meet these criteria:
- be a U.S. citizen;
- be 17 years of age before using the scholarship;
- be under 27 years old when graduating from college;
- receive a minimum ACT score of 19 or a minimum score of 920 on the SAT I; and
- have a high school diploma or the equivalent.
The traditional ROTC program lasts four years. The Basic Course covers the first two years. Students who enroll in and complete the Basic Course but choose not to continue to the Advanced Course do not incur a future military obligation.
Admission to the Advanced Course, which comprises the second two years of the program, is competitive and not automatic. The Advanced Course also includes attendance at a training camp during the summer between the student's junior and senior year of college.
Throughout the four-year program all books, supplies, and uniforms needed for any aspect of ROTC are provided free of charge. In addition, students selected for the Advanced Course receive a living allowance of up to $2,000 per year.
A student who is interested in the ROTC program and has missed the first two years may still possibly be eligible for the Advanced Course. There are several criteria for eligibility and there are additional requirements. Students in this situation should consult with a ROTC coordinator.
Students who complete the program and receive a commission are required to serve as either active duty or reservists.
Volunteering
AmeriCorps - www.americorps.org
Created in 1993, AmeriCorps is part of the Corporation for National and Community Service, which also oversees Senior Corps and Learn and Serve America. Together these programs engage more than 2 million Americans of all ages and backgrounds in service each year.
AmeriCorps is a network of national service programs that engages more than 40,000 Americans each year in intensive service to meet critical needs in education, public safety, health, and the environment. AmeriCorps members serve through more than 2,100 nonprofits, public agencies, and faith-based organizations. They tutor and mentor youth, build affordable housing, teach computer skills, clean parks and streams, run after-school programs, and help communities respond to disasters.
AmeriCorps is made up of three programs: AmeriCorps*State National, AmeriCorps*VISTA, and AmeriCorps*National Civilian Community Corps (NCCC).
During full-time service, AmeriCorps members receive a modest living allowance, health coverage, and child care for those who qualify.
After successfully completing a year of service, they receive an education award of $4,725. This award can be used to pay off student loans or finance college, graduate school, or vocational training.
AmeriCorps members must be U.S. citizens, U.S. nationals, or lawful permanent residents of the U.S. and be at least 18 years of age.
Peace Corps - www.peacecorps.gov
The educational benefits of the Peace Corps primarily target graduate students or students who have done some undergraduate work. While most Peace Corps assignments require a college degree, there are positions for students who have either not begun or not completed a bachelor's degree program.
Peace Corps Basics
Volunteers in the Peace Corps can expect the following during terms of service:
transportation to and from the country where service is provided;
a monthly living allowance to cover housing and other basic needs;
a 15% cancellation of the outstanding balance on Federal Perkins loans for each year of service;
possible deferment of Federal Stafford loans, Federal Perkins loans, or Federal Consolidation loans;
$6,075 after the completion of three months of training and two years of Volunteer service;
24 vacation days per year;
comprehensive medical and dental coverage; and
reasonably priced health insurance plan for up to 18 months after completion of volunteer service.
Fellows/USA Program - www.peacecorps.gov/index.cfm?shell=learn.whyvol.eduben.fellows
The Fellows/USA Program offers Volunteers who have returned home scholarships or reduced tuition in advanced degree programs at more than 30 participating colleges and universities across the country. In return for these educational benefits, Fellows commit to work for two years in an underserved community as they pursue their graduate degree. Volunteers can apply for the Fellows/USA Program at any time after their Peace Corps service.
Master's International Program
The Master's International Program allows students to incorporate Peace Corps service into master's degree programs at more than 40 colleges and universities across the country. Prospective student-volunteers apply separately to the Peace Corps and participating graduate schools. Once accepted by both, they fulfill on-campus studies, usually for one year, and then spend the following two years earning academic credit while working on a relevant Peace Corps project. Most schools provide students with opportunities for research or teaching assistantships, scholarships, or a tuition waiver for the cost of credits earned while in the Peace Corps.
Tuition Reimbursement
Many employers offer Tuition Reimbursement programs. Each company handles their reimbursement plan differently, but here are some items to consider.
Most companies will not pay tuition up-front.
Many have a tiered reimbursement program commensurate with tenure and the grade received in the course.
There may be a probationary period or a term of service that has to be completed before an employee becomes eligible.
Some schools may make the student pay the tuition upfront; however, many schools are willing to defer tuition payment and bill the employer.
A company may offer tuition reimbursement for job-related degree programs only, or may allow an employee to pursue any degree. Typically, students have more freedom at the undergraduate level and more restrictions at the graduate and professional level.
A company may offer tuition reimbursement at specific schools only, or may only pay up to a certain comparable rate. For example, if a company prefers that you attend a public school, but you choose to attend a private school, they may reimburse you up to the cost of attendance at that public school.
A company may require a service commitment once an employee has used tuition benefits. For example, an employee may need to work for three years at that company after the completion of the degree program.
In addition to Tuition Reimbursement, a student may choose to seek full-time employment at the college they attend or plan to attend. One of the most attractive benefits of working at a school is the Tuition Benefit program.
Tuition Benefits
Many schools will offer employees free part-time tuition as an employee benefit. There may be an application or a nominal processing fee involved but generally the benefit far outweighs the cost. As with Tuition Reimbursement, there are variances from school to school.
New employees may not be immediately eligible for benefits.
Employees may be restricted in their choice of class times, and/or may have to wait until after the regular registration period has ended.
Graduate benefits are typically taxable and may have an impact on taxes withheld at different points in the year.
Tuition benefits may not pay the full tuition rate.
Students receiving tuition benefits may be eligible for financial aid and should complete the FAFSA on-time each year.
Some of a school's most popular programs or professional programs may not be eligible for tuition benefits.
Employment generally does not guarantee acceptance into a program of study.
And, with both Tuition Reimbursement and Tuition Benefit programs, many companies/schools will offer similar benefits to the children of their employees.
Colleges and universities in particular are most likely to offer free full-time tuition to dependents of faculty and staff members. Schools may also have reciprocity agreements with other colleges and universities so that children have a choice of schools.
Balancing Work and School
Work may seem like an all too obvious solution to a student's financial problems. However, various combinations of school and work can benefit different students. Following are ways that a student can balance work and school and not feel as if they have to choose between the two.
Part-Time Work / Part-Time School
Working part time while going to school part time is not just a financial matter. It can also be an academic choice. For the student who wants to go on to college but perhaps isn't the strongest academically, a balance between work and school can help.
This choice allows the student to devote time to studies.
Good grades achieved on a part-time basis opens doors to academic awards.
It allows the student to avoid incurring student loan debt, while still "testing the waters" academically.
The student gains work experience while working on a degree.
Part-Time Work / Full-Time School
A student may be a bit more sound financially and stronger academically, but may still lack the additional resources needed to meet the full cost of attendance. Working part time, a student typically chooses between: Federal Work-Study, non-work-study campus employment and regular part-time employment.
Benefits of Federal Work-Study
Earnings are not counted as a resource when the student completes the Free Application for Federal Student Aid (FAFSA) for the following year.
Schedules are typically flexible and the student can work around his/her classes and exam schedule.
Students are generally limited to 20 hours per week; however, during school breaks, students can work full time. And, in the summer, students can earn Federal Work-Study dollars, even if they are not enrolled in classes.
Students can get work experience in a wide variety of areas. Students may also be able to choose a job related to their major or to their extracurricular interests.
Benefits of Non-Work-Study Employment
Non-work-study on-campus employment is an option for students who do not have enough demonstrated financial need to qualify for Federal Work-Study.
Most of these jobs offer students the same flexibility as is offered to Federal Work- Study students.
It is important to remember that non-work-study earnings are treated as income when completing the FAFSA for the next academic year.
Regular Part-Time Employment
A student may choose to look for employment off campus for a number of reasons:
- regular employment typically pays more than on-campus employment;
- for commuter students, off-campus jobs may be more convenient; and
- part-time employment in the student's chosen field may be a resume-builder, allow for networking opportunities, and open doors to jobs after college.
It is important to note that the earnings from regular employment are treated as income when determining the student's financial need.
Full-Time Work / Part-Time School
There are many reasons why a student may need to work full time and attend college on a part-time basis. A traditional student with traditional circumstances may be able to completely pay for college out of their own salary. This is especially true if the student is attending a community college, state university, or even a private school that offers a lower per credit hour rate for part-time students.
Typically students who are working full-time and attending school part-time are not traditional students. They may be helping to support their family, they may have parents who are not contributing to their education, or they may have children of their own to support.
A student working full time may not earn enough to cover each semester's tuition. Part-time students are eligible for financial assistance, so even for students working full time, he/she should complete the FAFSA each year.
Full-Time Work / Full-Time School
Cooperative Education (Co-op) programs allow academically talented students to alternate full-time education with full-time employment in their field of study. The rules governing each Co-op program vary from school to school and company to company, however most have some of the following basic guidelines:
in the sophomore or junior year, a student alternates semesters or quarters of school with equivalent terms of employment;
the semesters or quarters of work are applied to the degree requirements;
the student may receive a paycheck intended for educational use, or may receive tuition payments in exchange for employment;
successful completion of the work/school program may lead to employment after graduation; and
some programs may take five years to complete.
For more detail on Co-op programs, visit www.co-op.edu.
Home Equity / Lines of Credit
If parents are willing to help but don't have the resources available, a Home Equity Loan or Line of Credit may be an option. Home Equity Loans have become more attractive for families in an income bracket that is beyond the interest deductions established for the PLUS loan.
A Home Equity Loan is a lump sum one-time payment.
A Home Equity Line of Credit allows families to borrow what they need when they need it, with a cap that may not be exceeded.
Interest on most home equity loans is fully tax-deductible, as opposed to other types of consumer debt.
The income tax deduction cap for home equity debt is $100,000 beyond the original mortgage loan.
Most borrowers who intend to use the funds for college education choose the line of credit. A line of credit allows more flexibility and delays the cost until it is necessary. Most lines of credit are typically divided into two phases: the "draw" period, when a parent can borrow as needed, and a repayment period.
Today it is best to shop around. Lenders are competing for business and offer many perks. Some lines of credit may offer interest-only payments for a number of years, zero closing costs, or the option of switching from a variable to a fixed interest rate if the prime rate increases.
Federal Trade Commission (FTC) Warnings
As home equity becomes a more popular tool for financing college costs, more and more consumers are falling victim to lending fraud. The FTC has put out the following guidelines for identifying parents who may be the victim of fraud. Some of the warning signs include:
if a family isn't sure if they have a loan or a line of credit;
if the family says they were told to borrow more than they wanted to;
if they don't know how they'll make the high monthly payments; or
they don't know the terms of their loan because either they signed blank forms, or were refused a copy of the documents they signed.
Target populations for this type of fraud include:
older parents;
low income families who own their own home; and
parents with adverse credit who haven't been able to get other consumer products.
For more information, visit the FTC's website at www.ftc.gov.
Other Options
Payment Plans
Part of the problem for families may not be the actual cost of college, but paying for it all in one lump sum at the beginning of the academic year. This is particularly true for families that have not saved for college, but have an income that substantiates their Expected Family Contribution (EFC). To deal with this situation, many schools offer payment plans that allow the student or parent to begin making monthly payments before classes begin and continue throughout the academic year.
Students using this type of plan are allowed to register for classes each term, even if they have a balance, as long as they are current on their scheduled monthly payments. Schools may offer their own in-house options, or use a third-party company to handle this financing.
Typically, families can choose from a number of options, ranging from 6 to 12 months. A family with $7,000 in unmet need may be unable to come up with $3,500 at the beginning of each semester, but could end up with late payment and interest fees added to the balance. That same $7,000 spread out from the April before classes begin to the following April would allow the family to make payments of $583 each month, which would substantially reduce the "sticker shock" of $7,000 and could eliminate additional fees.
Most payment plans require a family to be fully aware of their situation as early as possible so that payment arrangements can be finalized. Students should be encouraged to file the FAFSA as soon as possible after January 1 and contact the school's bursar for information about possible payment options.
Even More Ways to Pay for School
Look for schools that offer a tuition reduction to alumni or siblings. A parent may get a reduced tuition rate if they have two children attending at the same time. The same may be true of parents whose children will be attending the same school they themselves attended.
Choose a school that offers a four-year "locked-in" tuition rate. A guaranteed rate for four years may allow families to plan more efficiently.
Take Advanced Placement (AP) courses and exams in high school. Attend a school that offers the most AP credit toward a degree program. In some instances, a student who has done well in the AP program can gain a semester or more of academic credit.
The College Level Examination Program (CLEP) can reduce the number of credit hours a returning adult student may need to complete by granting college credit for work experience. The fewer courses needed for degree completion, the less money that is needed to finance the program. Visit the College Board's website at www.collegeboard.com/student/testing/clep/about.html for more information about the CLEP.
Schools may offer reduced tuition during the summer session. A student may be able to complete required courses during the summer for a fraction of the cost charged during the regular academic year.
Accelerated degree programs can help a student complete a traditional four-year degree in less time. Such a program may also combine an undergraduate degree with a graduate degree in a reduced timeframe.
Many schools offer a "flat rate" of tuition for full-time study. Students can maximize the value of this by taking the maximum number of courses. For example, using a "flat rate" fee, a student taking 12 credit hours may be charged the same price as a student taking 18 credit hours.
Students that live in on-campus (dormitory) housing may save money by living off campus in an apartment.
Alternative Loan Programs
All families should apply for federal, state, and institutional aid before considering the alternative (i.e., credit-based) loan sources. If the choice has been made by students/parents, they should be encouraged to "shop around" and identify the program that best meets their financial needs. The student should contact the program administrator of the private loan program directly for information and an application. Ask questions such as:
Who is an eligible borrower?
Is a cosigner required? Are there additional benefits with a cosigner?
What are the annual limits and the aggregate limits?
Is school certification required?
What is the interest rate?
Does interest have to be paid during in-school periods?
Are any principal payments required during in-school periods?
What is the minimum annual income required for a family to borrow?
Is there a service fee?
Is the loan based on credit-worthiness? If so, what is the debt-to-income ratio required?
What is the origination/guarantee fee, if any?
Are any other fees required for the loan?
What are the repayment options, maximum lengths of time, and deferment options?
How long is the process from application to receipt of funds?
Who is the servicer?
Are the loans sold?
What are some of the other features?
How will the loan be disbursed: to the student or school?
Are there any deferment options?
Educational Financing Resource Checklist
When researching different types of financial aid, you should consult a variety of sources. By doing so, you can gather information on scholarships and loans offered by many different organizations. Some sources you should contact are:
High School Counselor -- information about all types of financial aid, including local scholarship and loan sources
Financial Aid Office -- information on institutional aid programs, alternative programs as well as federal and state financial aid programs
College Academic and Special Interest Departments -- awards for students majoring or pursuing a career in that field
Public Library -- resource of reference material on financial aid programs, private scholarship services, and colleges
Internet -- an additional source of on-line reference materials and scholarship search services
Local Chamber of Commerce -- scholarships and loans offered by clubs and professional organizations
Parents' Employers -- scholarship and loan programs for children of employees
Banks and Credit Unions -- scholarship programs and information on savings plans and educational loans
Corporations and Community Organizations -- scholarships and loans may be available within the community
Source: Illinois Student Assistance Commission (ISAC). (n.d.). Other Ways to Pay for College. From http://www.collegezone.com/counselorzone/1081_1889.htm
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