About two-thirds of college students borrow an average of nearly $30,000 for their education. The rate of borrowing is highest at for-profit schools, with 88 percent of those students requiring financial assistance, according to the Institute for College Access and Success. Many of these schools are online only. Yet, the growth of online programs means that students have plenty of options to get an education that is within their financial reach. For online students, a public school in their home state — or one that offers in-state tuition to all students — will be the most affordable option.
Student loans are now more likely to be delinquent than credit card bills, mortgages, and other types of borrowing. Rates of loan defaults are highest for students attending for-profit schools, with nearly half of all defaults coming from these students, even though they make up only 13 percent of college students.
The best way to ensure that you can pay back your loan is to graduate on time and land a good job. When considering a school, look at retention and graduation rates, as well as job placement rates. Schools that graduate a higher percentage of students tend to have lower default rates. The White House has a really useful college scorecard that shows graduation rates, loan default rates, and other information for each school.
How can I reduce my loan?
The majority of online students will not get a college fund from their parents when they begin school. Most online students are in their 20s and 30s, according to a survey by Learninghouse and Aslanian Market Research, and about 80 percent already have some college credit.
Online students are more likely to need to borrow for college than traditional students because many come from households with less than average income. The median household income was about $52,000 in 2013, according to the U.S. Census Bureau. More than 60 percent of students earning an undergraduate degree online live in households with income below that level, according to data from Learninghouse and Aslanian Market Research.
If you don’t have money set aside for college but you want to earn an online degree, start saving as soon as you can. Every little bit that you save reduces the amount you have to pay back later. Though President Obama talked about taxing the college savings plans known as 529s, he dropped that proposal amid an outcry from both political parties. So 529s remains a good tax-free way to save your money.
Both the school you choose, and the work you do immediately after you finish school, can help reduce — or even eliminate — your student loans. Here are some tips to reduce your debt load:
Start at a community college
Many community colleges now offer online classes, and they are a bargain compared to four-year institutions. You get two years of low tuition while you take introductory courses, and then you can transfer for your final two years. Make sure that the four-year schools you would like to attend will accept transfer credits.
Seek an innovative school
Online students tend to have more life experience than the typical college student, and some schools offer college credit for the skills gained along the way. At the revolutionary Western Governors University, students need to prove competency rather than perseverance. As soon as students pass assessments proving that they have learned the required skills, they can move to the next class. This allows some students to finish coursework in less time than at traditional schools.
Work at a job that will help pay
Many students who choose an online program need the flexibility to work while earning a degree. One good way to reduce loans is to work for a company that provides tuition stipends or reimbursement. Many large employers, including Starbucks and UPS, provide tuition assistance.
Commit to public service after graduation
The AmeriCorps program offers education assistance for people who complete a variety of jobs in schools, public agencies, and nonprofits. The money can be put toward education or be used to pay off loans. Americorps includes programs such as the National Health Service Corps, which sends health workers to under-served areas, and Teach for America, which brings teachers into schools with many low-income students. You can do good for the community and help yourself at the same time.
How is aid different for online students?
Online students have access to the same financial aid as traditional students in most cases. There is one complication: Online students have to determine whether their program is accredited, and proof can be tricky to track down. Accreditation tends to be more obvious with traditional schools. The U.S. Department of Education keeps a list of approved accreditors, so start there. The government has begun to cut off financial aid at some for-profit schools that draw too much of their funding from student loans. So, check the accreditation. Get your loans. And get a degree that employers will trust.
What types of financial aid can I get?
The U.S. Department of Education provides the most student aid, helping about 13 million students pay for college each year. The application for financial aid is free, and there is no age limit for receiving financial aid. There are three types of government aid:
How do federal loans work?
The Direct Loan program is the largest and provides four types of loans:
- Direct subsidized loans — For undergraduate students who demonstrate financial need.
- Direct unsubsidized loans — For undergraduate and graduate students regardless of need.
- Direct PLUS loans — For graduate students and parents of dependent undergraduate students to pay educational costs not covered by other financial aid.
- Direct consolidation loans — For students who want to combine all of their student loans with a single servicer.
The Federal Perkins Loan Program provides school-based loans to students with the greatest financial need.
How much can I borrow?
Undergraduate students can borrow $5,500 to $12,500 per year in direct subsidized loans or direct unsubsidized loans. Graduate students can borrow up to $20,500 per year in direct unsubsidized loans.
Undergraduate students can borrow up to $5,500 per year in Perkins loans depending on need and other aid that they are receiving. Graduate students can borrow up to $8,000 per year.
What are the benefits of a federal loan?
- The interest rates are lower than a private loan, and the rates are fixed.
- You can wait until after college to repay the loan as long as you are in school at least half-time.
- If you show financial need, the government will pick up your interest payments while you are in school.
- You can select flexible repayment plans and have the option to postpone repayment.
- The government forgives parts of loans for people working in certain jobs.
How do grants work?
Grants and scholarships are gifts that do not have to be repaid as long as the student graduates. Grants are usually need-based, and scholarships are usually merit-based.
There are four types of grants:
- Federal Pell Grants — Usually for undergraduate students, based on financial need and the cost of attendance. Maximum award is $5,775 for the 2015-16 school year.
- Federal Supplemental Educational Opportunity Grants (FSEOG) — For students with the greatest financial need and administered by college financial aid offices. Award is $100 to $4,000 per year.
- Teacher Education Assistance for College and Higher Education Grants (TEACH) — For students planning to become teachers. To receive this grant, students must sign a contract agreeing to teach for four years in a high-need field at a school that serves low-income students. Maximum award is $4,000 per year.
- Iraq and Afghanistan Service Grants — For students who qualify for Federal Pell Grants and have a parent or guardian who was killed while serving in Iraq or Afghanistan. Students must have been under 24 or enrolled in college at the time of the parent’s death. Maximum award is $5,311 per year.
How does work-study work?
Federal work-study programs provide part-time jobs to students with financial need to help the students cover the cost of college, and it is available for online students. These jobs tend to be service-oriented or related to the field that the student is studying. Check with your school’s financial aid office for opportunities.
How do private loans work?
Private loans are made by banks or other for-profit institutions. Unlike government aid, these loans are usually based on a credit analysis rather than the FAFSA. They tend to have higher interest rates, and the rates are often variable, which means they might increase. The loan terms are often shorter, so monthly payments will be higher. Students who have concerns about their private loan should contact the Consumer Financial Protection Bureau.
How do I apply for aid?
Fill out the FAFSA (Free Application for Federal Student Aid). Aid is based on the financial resources of the parents of students younger than age 24, unless they can prove emancipation or loss of both parents. There are exceptions for military veterans, married students, and graduate students.
Eligibility for aid
Most people applying for financial aid must meet the following criteria:
- demonstrate financial need
- be a U.S. citizen or eligible noncitizen
- have a social security number
- be registered with the Selective Service for males between 18 and 25
- be accepted in an eligible degree or certificate program
- be enrolled at least half-time to receive Direct Loan Program funds
- sign FAFSA statements that you are not in default on a student loan or grant, and agree that you will only use money for educational purposes
- show that you’re qualified for college with a high school diploma, GED, or proof of approved home-schooling
What does financial aid cover?
- tuition and fees
- room and board
- books and supplies
- a computer
- dependent care
What resources are available for minority students?
Remember that there are multiple ways to search for financial assistance. You might qualify for scholarships, internships, and other programs based on your race, major, or extracurricular interests.
For black students, the United Negro College Fund is a great resource. UNCF has lists of scholarships and also helps to administer student internships and fellowships with leading companies. In most cases, students will need to complete the FAFSA to be eligible for these opportunities.
The Hispanic Association of Colleges and Universities keeps a list of scholarships for Hispanic students along with internship and work-study opportunities. And the Native American Scholarship Fund provides resources to Native American students pursuing their degree. The Asian & Pacific Islander American Scholarship Fund provides scholarship information and other resources to students of Asian descent.
Many professional organizations, such as the National Black Nurses Association, provide scholarships to minority students based on their field of study. In a similar vein, the U.S. Department of Education is trying to increase the number of minority students who enter STEM fields with its Minority Science and Engineering Improvement Plan, which provides grants for studies in science, math, and engineering.
Though women make up the majority of college students, they continue to be underrepresented in high-earning occupations and leadership positions. There are many scholarship opportunities for women in their 20s, 30s, and beyond who want to improve their job prospects.
What resources are available for students with disabilities?
Online degrees can be especially attractive to students with disabilities because they offer a more flexible pace and don’t require traveling around a college campus. The resources set up for students with disabilities at traditional schools also apply to online schools.
For more information on federal financial aid, contact the HEATH Resource Center at the National Youth Transition Center. The center serves as a clearinghouse for college information for students with disabilities. The University of Washington has an extensive list of scholarship opportunities for students with disabilities.
Many states offer education grants to people with disabilities through the vocational rehabilitation program. For information on services offered by your state, visit the U.S. Department of Labor’s Job Accommodation Network.
What resources are available for veterans and members of the military?
ROTC Scholarships are based on merit
- Army ROTC scholarships are available at hundreds of schools.
- Air Force ROTC scholarships focus on students earning foreign language and technical degrees, but other opportunities are available.
- Navy ROTC scholarships are available for two-year and four-year programs.
- The Marine Officer NROTC Program pays for schooling at approved institutions.
- Montgomery GI Bill Active Duty — Active members who pay $100 per month for 12 months receive monthly education assistance for up to 36 months after they have completed their service obligation.
- Montgomery GI Bill Selected Reserve — Those with a six-year commitment who are actively drilling receive up to 36 months of education assistance.
Post-9/11 GI Bill is for those who served following 9/11 for
- The Yellow Ribbon Program provides all resident tuition and fees for a public schools or tuition and fees for a private school not exceeding the maximum rate. This is for servicemembers who became disabled while serving and for their dependents.
- The Transfer of Entitlement Option allows servicemembers to transfer their Post-9/11 GI Bill benefits to their spouse or dependents.
Iraq and Afghanistan Service Grant
- This is for the children of servicemembers who died serving in Iraq or Afghanistan. The award is equal to the maximum Pell Grant award, which is $5,775 for the 2015-16 school year.
Do your research and begin
Financial aid can look daunting, but you can tackle it the same way you will tackle your college courses — one step at a time. Find a reasonably priced school that has the program you want. Fill out the FAFSA. Contact your school’s financial aid office. Look for scholarships. You’ll soon be past that initial learning curve and able to focus on your education.