Student loans offer the flexibility to pursue one’s passions in college. But do students fully understand the financial burden that these loans can impose on graduates? Large loans can follow graduates throughout adulthood and limit their options in the job market. Many students pursue college to grow their income potential in an increasingly skilled labor force, but they might not be able to afford to pursue their passions if their potential job or field of interest won’t allow them to meet their monthly loan payments. Students often find themselves relying on loans and credit cards to get them through college, borrowing more, and starting their career path with debt that can affect their credit rating. The excess debt of younger generations requires them to dedicate much of their income to paying off outstanding loans rather than building wealth for the future. This cycle actively delays the commencement of other financial goals, such as saving for retirement, buying a house, or even simply having an emergency savings account for an unexpected bill or cost.

As the price of college grows, so does student debt. Student loan debt in the U.S. has more than doubled over the past decade. And this ever-increasing crisis is not going away any time soon. For the 2020–2021 school year, the average cost of tuition was $41,411 to attend a private college — at public colleges, the average cost of tuition was $11,171 for in-state students and $26,809 for out-of-state students. The majority of Americans cannot afford to bridge the gap between need-based financial aid and the cost of admission simply out of pocket. As a result, many students turn to loans with high interest rates and a hefty burden to carry as they enter the workforce.

Alternatives to student loans

Financial aid

When considering universities, it is wise to consider the school’s generosity with financial aid in addition to the academic programs that the school has to offer. Every college is required to have a net price calculator, and making sure you can afford the school to which you are applying is essential before hitting submit on your application.

Some applicants believe that they will receive more financial aid from less well-known universities rather than the big names like the Ivy Leagues. This has led to the phenomenon called “undermatching.” According to research conducted by Stanford economist Caroline Hoxby, many minorities and financially disadvantaged students do not apply to top schools despite having the scores and grades typically required for admission. Undermatching happens disproportionately to minorities and low-income students because they aren’t given the proper information on financial support available to them and thus believe that the most prestigious colleges are also the most cost-prohibitive. On the contrary, the most selective schools typically offer more financial aid than smaller colleges. At Stanford, for example, “families earning less than $150,000 with assets typical of that income level pay no tuition.”

With this in mind, it is important to understand the difference between need-blind and need-aware programs. Need-blind means that they will not be taking your financial status into consideration during the review of your application, whereas need-aware means that they will be looking at your ability to pay. Colleges use these terms to describe their admissions processes as well as their scholarship programs. To apply for need-based financial aid, and depending on the school’s requirements, you will likely fill out the Free Application for Federal Student Aid (FAFSA) and/or CSS Profile to share your family’s financial status with colleges. But what else can you do to cover the cost of college before turning to loans?

Merit-based scholarships

Many colleges not only provide need-based scholarships but also merit-based scholarships. Merit-based scholarships through colleges are typically granted for academic, athletic, or artistic achievements. Many students miss out on these opportunities to be granted more financial aid simply because they are unaware of the programs out there. When you hear the word “scholarship,” you perhaps exclusively think of money granted by schools for students who have already been accepted. But if you think that’s all that’s offered, you’ll be surprised by the number of opportunities out there to help you pay for school! 

In addition to the financial aid resources available at your college, there are many institutions and organizations that have scholarship funds readily available to you. Merit-based scholarships flood the internet every college admissions season: A quick scroll through Unigo can expose you to hundreds of scholarship opportunities that you can apply to with just an essay or sometimes even less! Other organizations like the Financial Literacy Club, an organization I started to educate and empower students to become financially literate individuals, have a merit-based scholarship fund granted to the student who best exemplifies the mission of our organization. Not enough students take advantage of these resources when trying to pay for school, despite the fact that these merit-based scholarships could provide a couple hundred bucks for books or even a full ride to pay for your dream school. 

Navigating student loans

After you’ve done your research on your scholarship and financial aid programs, you may still need to take out a student loan. Loans can be manageable if you know how to shop for the best options and plan your repayment. It is crucial to look for the lowest interest rate and not settle for the first offer you get. Websites like Credible allow you to compare multiple offers from lenders to ensure that you receive the best rate. Even if you are unable to get a low interest rate now, you can refinance your loans later on as you develop your credit history. To improve your credit score, make sure you keep up with your payments over time! Although going away to college comes with a hefty price tag, it’s definitely an investment worth making and one that can be made manageable if you know all of the tools at your disposal. By seeking out resources dedicated to financial literacy, you will be better prepared to make informed decisions about pursuing financial aid, scholarships, or loans.