Funding an Education: How Am I Supposed to Pay for This?

So you’ve decided where you want to go to school. Everything is really coming up roses. You’ve attended an admitted student day, you’re networking with current students and alumni, and you’ve made your tuition deposit. And then you wander upon this. The dreaded “Cost of Attendance” statement. It’s enough to make a grown man lose his lunch. For those of you on the cusp of starting your undergraduate or MBA program in the fall, you might be wondering: How am I supposed to pay for all of this? It can all seem very overwhelming, given the sum of money that is expected of you up front and then again on a yearly basis. So I’ve compiled a short list of options (some more practical than others) for paying for school.

Personal Savings

For most of us, the ability to write a fat check for the entire sum of tuition and fees is probably not realistic. Unless you’re coming from affluence or have made a lot of great investment decisions over the past couple of years, you probably won’t be funding your education completely through personal savings. Keep in mind, however, that some schools do factor “personal savings” into the cost of attendance. For example, some schools calculate that you should able to fund 5-10% of expenses out of your personal funds when determining the maximum amount of loans a student should take out. It’s not a hard percentage and it will definitely vary from school to school, but putting aside a little bit of cash to defray expenses during school is a good idea.

Relatives

Once again, for most of us the Bank of Mom and Dad isn’t going to be able to completely fund our college experience. But they may be able to provide some support for your venture. They could help you take out student loans if you don’t have any established credit or if you have unfavorable credit. Some of my friends have taken out supplementary loans from their parents or relatives at much more favorable terms than they would get from a bank.

Loans

A majority of students will be looking at loans to fund a bulk of their college expenses. It’s important to understand the loan options that are out there before you decide on what loan to take out. Here’s a quick break down of loan options:

Federal Loans Only available to U.S. citizens and certain non-citizens. The Federal Direct Unsubsidized Loan can give you a maximum of $20,500 per year. There is a fixed interest rate (currently 6.8%) and origination fee (currently 1%). This loan available regardless of credit score or history. The Federal Graduate PLUS Loan can cover the rest of your tuition and living expenses up to the full cost of attendance. There is also a fixed interest rate (currently 7.9%) and an origination fee (currently 4%). Approval for this loan is based on credit history. For more information, go to the The Department of Education .

Private Loans may give you more competitive rates than the federal loans, whether fixed rate or floating. Rates will be determined by your credit score. Some may have pre-payment penalties. Definitely shop around with different banks before deciding on a private loan.

Scholarships/Fellowships Free money available to on the basis of merit, need, community service, leadership experience, and a variety of other factors. Scholarships and fellowships can either come from your school or from third party organizations. Many schools consider all applicants for scholarships during the application process. Some scholarships become available after a student demonstrates superior performance in a particular category after the first year. Your school of choice should be able to provide you with a list of scholarships and fellowships available.

Loan Repayment Programs

Some schools will have loan repayment or forgiveness programs for going in to less lucrative fields, like non-profit organizations or government. Yes, I get it, if you’re reading this article you’re probably not pursuing either of those lines of work, but it might be an option for you depending on your goals. A MBA graduate was selected for his school after accepting a full-time offer from the SEC. After a few years, his loan was repaid and he was able to take his experiences and still leverage them into a banking career.

Crowdsourcing

A few companies are starting to realize the value of crowdsourcing to fund an education. Using the “peer-to-peer” model, companies are matching up MBA student lenders with alumni for a mutually beneficial lending arrangement. The MBA student gets a much lower interest rate on their student loans, and the alumni gets a good, reliable return on investment given the high employment rates of top MBA programs. Companies like CommonBond and Social Finance Inc are making these alternative loan options more and more enticing for incoming students and investor alumni. For those who are planning on attending European schools, check out Prodigy Finance Ltd.