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Saving and Paying for College

It’s the American dream … going to college! Giving yourself the opportunity to succeed is a natural goal. You know it’s going to take money … a lot of money! So how do you make it happen? At ESL we’ve taken the time to think it through so you can!

Investing in your education can only brighten your future. Higher education can open the door to a world of opportunity. In recent years, the cost of attending a public university has risen nearly 51%. Saving a little at a time will make a big difference. The earlier you start the better!

Things to know

  • Before receiving financial aid (loans, grants, or scholarships), you will be required to complete the Free Application for Federal Student Aid (FAFSA).
  • 529 plans are a great way to save for future educational needs.
  • There are many payment options including savings, grants, scholarships, federal Stafford loans, parent loans, and private loans.
  • Subsidized loans do not charge interest while you are in school – unsubsidized loans do.
  • An ESL Home Equity Line of Credit can help you bridge gaps in covering your costs.
  • Planning

    When it comes to your college education, planning ahead makes sense but isn’t always practical. No matter where you are financially, there are steps you can take to get started.

    When there’s plenty of time to save, follow these steps to get a plan together:

    Step 1 – Do the legwork to get a budget together and figure out how much you can set aside within the scope of your other goals – retirement, emergencies, etc.

    Step 2 – Start saving now! Even if it’s only a small amount, it will go a long way in the end.

    Step 3 – Research options for saving in special college savings accounts such as Coverdell and 529 plans.

    If the time is drawing near, take the following steps to get on track:

    Step 1 – Research education costs for community, public, and private schools in your area of interest.

    • Private schools aren’t always the most expensive depending upon financial aid, scholarships, and other opportunities.
    • Check out the “Compare College Costs” tool to see prices for different schools.

    Step 2 – Apply for financial aid to see the amount for which you qualify.

    Step 3 – Communicate with the colleges in which you are interested. Contact the financial aid office for an appointment.

    • They will give you all the information you need about tuition payment plans, student loans, scholarships, and grants they are able to provide.

    For more information about applying for Student aid, view the “Applying for Financial Aid” handout.

  • Savings Plans

    If saving is the difference-maker early on in the college planning game, then the big question is, “Where’s the best place to save?” We’re glad you asked. Here are some quick thoughts:

    529 Plans:

    • Special college savings plans.
    • Offered by different states – to compare plans by state, check out
    • Provide different tax advantages depending on the state.

    To learn more, view a detailed Q&A about 529 plans at

    Coverdell Education Savings Accounts:

    • Special savings plans for future education expenses.
    • Allow parents, grandparents, other family members, friends, or even children to contribute money.
    • Individuals making contributions to Coverdell ESAs must meet certain income requirements.
    • Earnings grow tax deferred.
    • Withdrawals are tax-free when used for college.
    • Funds can also be withdrawn tax-free for primary and secondary school.
    • The maximum annual contribution for each minor beneficiary is $2,000 per year.

    For a detailed publication about Coverdell Education Savings Accounts, go to

    Take a look at the “College Savings Plans” handout for an in-depth look at both savings plans.

  • Student Loans

    If you feel the way most people do about student loans, then you have a lot of questions: Am I eligible? What are the best options? How do I apply? How much should I take? What will my responsibility be? Here’s a simple way to find the answers:

    First thing to consider:

    If you have to take out student loans, you essentially have two choices: federal student loans and private loans. Here’s are the main differences between the two:

    Federal Loans
    Private Loans
    What you need to know
    Federal LoansTake advantage of federal loans before private loans. Federal loans are typically less expensive and easier to repay.
    Private LoansPrivate loans usually cost more than federal loans and are less flexible if you have trouble making your payments.
    Federal LoansMost federal loans are subsidized and have fixed interest rates. Many students are eligible, and repayment terms are flexible.
    Private LoansYou can borrow greater amounts. If you shop around and can show ability to repay, you may be able to find low interest rates.
    Federal LoansA portion of your wages and tax refunds could be taken if you cannot repay.
    Private LoansYour interest rate and monthly payment may vary with little warning, and you have fewer options for repayment.

    The student loan process:

    1. Get an estimate from of your eligibility for federal student aid.
    2. When ready, fill out the FAFSA.
      (Must be completed for any federal student loans or grants.)
    3. Explore and compare the federal loan options first.
      (Go to the Federal Student Aid website for a full comparison.)
    4. Submit applications to schools.
    5. Compare school aid offers.
      (A school aid offer – award letter – tells what aid can be received at a particular school.)
    6. Decide on the financial aid you’d like to accept.
      (Learn more about the next steps in accepting aid from
    7. Receive aid.
      (How aid is received depends on the type of aid—grants, student loans, etc.)

    For a full, detailed explanation of the student loan process, read “Student Loans.”

    Don’t forget that there are ways other than student loans to pay for college. For information on grants and scholarships, go to for details.

  • Top Questions

    Even though you’ve learned the right steps to take on the college path, there can still be some lingering questions. Concerns about student loans and their effect on our financial lives are natural and important to consider. Here are some of the top questions that arise:

    How do I make the cost of college worth it?
    It’s important to think about how to get the best “bang for your buck” when it comes to your education. Be sure you consider the potential income versus the overall price.

    What kind of an interest rate can be expected?
    While rates vary year-to-year based on the type of loan, most federal loans fluctuate near 7%.

    What if federal loans are not enough to cover the costs?
    Consider the following options:

    What’s the standard repayment period for a student loan?
    Student loans are most commonly repaid in 120 months (10 years).

    If I co-sign a student loan how will it impact my credit?
    Yes. Co-signing a student loan may impact your credit rating just as co-signing for any other type of loan. This means that missed loan payments or defaults will appear on your credit report if the borrower doesn’t repay. Additionally, the monthly payment amount and debt loan can be taken into account when you apply for credit.

    Can a student loan be “forgiven”?
    There are limited federal student loan cancellation (also known as discharge or forgiveness) programs for federal student loan borrowers. Most commonly there are job-related discharges that will cancel all or a portion of a federal loan for borrowers working in certain professions.

    Is it possible to discharge student loans in bankruptcy?

    Most student loans are not dischargeable in bankruptcy unless you can prove “undue hardship” which can be very challenging.

    If you have more extensive questions about the impact of student loans to your finances, take a look at to get even more answers.