How To Pay For College Without Student Loans
College debt is holding back many young Americans from starting families, buying homes, or taking on any type of entrepreneurial risk. When you have student loans, you need consistent income and can’t hold out for your dream job. For many borrowers, things like vacations, weddings, and even creature comforts can’t be squeezed into the budget. An overwhelming portion of their paycheck goes to fixed costs like rent, health insurance, and loan payments.
Is there a way to attend college without debt? Sure, if you’re really good at sports or smart enough to invent new numbers. But what about the rest of us who don’t have a prayer at landing a scholarship? How can a proper education be obtained without a mountain of debt waiting at the end?
Paying For College Without Debt
Fear not gentle reader, excessive student debt isn’t inevitable. You can attend college without debt, but you will need to foot the bill somehow. In this article, we’ll discuss five different ways you can pay for college without taking out (too many) loans. Now, taking out loans for college is the easy way; you pretty much can’t be denied. Just fill out your FAFSA, sign on the dotted line, and wait for the federal government to write the check. Paying for college without loans is tricky because every method boils down into two distinct options – using your own money or asking someone else for theirs.
1) Take Advantage of Government Grant Programs
The government doesn’t just lend money to prospective students, they often just give it away for free. Governments at both the state and federal level are in the business of granting money to college attendees based on certain criteria. All college grants can be broken down into two groups: need-based grants and merit-based grants. The most popular of these are the Pell Grants, which are awarded to students who demonstrate the scholastic abilities for college success but don’t have the financial backing to pay for a degree. Your Expected Family Contribution (EFC) determines how much you can receive in Pell Grants.
The Teacher Education Assistance for College and Education (TEACH) Grant is another popular federal program (with a hideously shoehorned acronym) that gives cash to educators who are willing to work in underserved areas. To get a TEACH Grant, you must take certain courses during college and agree to teach a high-need subject or in a low-income area for four years.
Grants don’t just come from the federal government, either. Each state has specific grants awarded to in-state residents. Ready for another terrible acronym? The Toward EXcellence, Access, and Success (TEXAS) program helps any Texas resident who wants to attend college, has no criminal record, and will be getting an EFC less than $4000. To see what programs are offered in your state, check out the list here.
2) Contribute to a 529 or Coverdell Plan
In a previous post, we talked about how the tax code incentivizes us to save for retirement through 401ks and IRAs. Well, you have an incentive to save for college too thanks to Coverdell and 529 plans. Parents of potential college attendees can invest tax-free, but there’s a penalty for early withdrawals.
529 plans are investment accounts offered by different states for qualified education expenses. “Qualified education expenses” used to only mean college, but public and private K-12 schools were added in 2017. You don’t need to reside in the state offering a specific 529 plan to enroll either. Mutual funds and ETFs make up most of the investments and risk adjustments can be made twice a year. The account must be opened by a beneficiary (ie. not you), but note that assets in a 529 may reduce your eligibility for financial aid. More about 529 plans can be found here.
Coverdell plans work much like 529s. Formerly known as Coverdell Education Savings Accounts, contributions invested in these accounts grow tax-free if the money is used for education expenses. These plans often have more investment options, but contribution limits are $2,000 per year and people with incomes over $110,000 annually can’t open one. Additionally, the money must be saved before the beneficiary turns 18 and spent before they turn 30.
3) Save Money In a High-Yield Savings Account
We talked about getting better deals from banks a few weeks ago, but college savers can also take advantage of high-yield accounts. Online banks like Vio have savings accounts with interest rates as high as 2.46% and you start earning with your first $100 deposit. Traditional banks like CitiBank have good options too, like the 2.36% earning Accelerate Savings account. Need some starting cash for your savings? Santander and Chase both have $200 bonuses for opening new checking accounts and linking direct deposit.
4) Explore Income-Sharing Agreements
What if you didn’t have to repay anything for college until you landed a decent job? Sounds like a fantasy, but some schools are making it a reality. For example, the Lambda School offers 9-18 month computer and data science programs and they won’t charge you a penny upfront. Instead, you’ll only pay Lambda back after you get a job with a salary of over $50,000. After getting hired, Lambda will ask for a percentage of your salary (maximum of 17%) for two years. Income-sharing agreements (ISA) are becoming more popular as student debt spirals out of control. Purdue is the making the most noise in this space, but small schools like Norwich University in Vermont and Lackawanna College in Pennsylvania also offer ISAs.
Dan graduated from college with a degree in journalism and about $25,000 in student debt. He luckily landed in a career that allowed him to pay his loans off at a reasonable rate, but not without making some sacrifices (sorry grandmom). Dan buried himself in personal finance books to better manage his debt and start saving for retirement. He thinks $25,000 is more than enough to pay for a good education and is stunned by some of the near six-figure balances he sees student borrowers carrying around.
Born 45 minutes north of Philadelphia, Dan went to Penn State in 2004 to pursue a journalism degree with a minor in political science. He graduated into the worst recession in 80 years and got his first post-college job serving hamburgers and Miller Lite. Dan eventually settled in as a purchasing agent at a printer manufacturing company, which isn’t a profession you’d think would be #2 on a journalist’s list.
Dan now lives in Elkins Park, PA with his girlfriend, who graduated with over $80,000 in student debt herself after getting an education degree from Arcadia University. Seeing a new teacher forced to pay nearly $1000 a month in loans drove him to action and LoanGifting gave him a platform to not only help his significant other, but all kinds of borrowers struggling with student debt. Dan’s hobbies include poker, weightlifting, and watching the Eagles beat the Patriots in the Super Bowl twice a week on BluRay. His writing has been published on Benzinga, Fora Financial, and Credit Donkey.