Whether you have a student already in school or are exploring college savings options for your young child or grandbaby, you probably already know that paying for college is a daunting task for most Americans. From growing tuition costs to an increasingly complex financial aid landscape, navigating the process takes time, effort, and often, a lot of money.
At F&M Bank, we strive to help our customers conquer the financial challenges in their lives, setting them (and their loved ones!) up for long-term success. While paying for college is one of those big challenges, it can have big payoffs, leading to major economic rewards down the line for both individuals and their communities.
In this comprehensive guide, we’ll explore a variety of college funding strategies—from federal loans to education savings accounts—to help you find the most cost-effective solutions to help your student reach their higher education goals.
Understanding the Costs of College
With the average cost of attending college reaching nearly $40,000 per year, it’s important for students to understand what expenses they’ll face, to not only prepare for them, but also make practical choices to keep costs down, when possible.
Tuition: In-State vs. Out-of-State
State taxes offset a portion of a student’s tuition at public or state schools. This means that costs for out-of-state students will generally be higher than students who are residents of the state where the school is located. In Virginia, the average cost of in-state tuition for residents is about $14,000 per year (about $24,000 with room and board). Out-of-state tuition costs come in about double that price at around $27,000 per year.
On the other hand, the average sticker price for private schools is over $40,000. Private schools do not usually differentiate between in-state and out-of-state residents for tuition, but may have additional fees for international students to cover costs of special services. However, if your student is attending a private school that’s farther away, you’ll also need to calculate additional transportation costs to get there (and visit home!), as well as long-distance moving or furnishing expenses.
How do you qualify for in-state tuition in VA?
In order to qualify for in-state tuition, your student must be a resident of Virginia—for at least 12 months prior to the start of classes.
If your student is coming from out of state, this usually means they will pay out-of-state tuition their first year. In addition to living in Virginia while at school, your student will also need to show they intend to remain in Virginia indefinitely—not just for college. This can be shown by:
- Filing income taxes in Virginia
- Registering to vote (and voting) in Virginia
- Having a Virginia driver’s license and/or motor vehicle registration
- Holding continuous residence in Virginia (not going home for the summer)
- Having economic ties in VA: Owning a home, having a job, having post-graduate employment lined up
- Social ties: Having close family in the state
- Military records
To learn more, check out the Guidelines for In-State Residency and Tuition by the Virginia State Council Of Higher Education.
What other costs do I need to prepare for?
In addition to tuition, there are dozens of expenses to consider when preparing financially for college. These might include:
- Fees: Your student will encounter a number of fees, from registration fees to technology fees. The US News and World Report provides a useful list of potential college fees to keep in mind.
- Room and Board: Room and board costs range widely—and these costs can even vary based on where they live and their meal plan. These costs average nearly $50,000 in total for four years. Students can save money by living at home, though you’ll still need to estimate at-home living expenses.
- Food: Even if your student has a meal plan, create a budget for additional food expenses, including snacks and meals out.
- Equipment and Books: Most students will need to purchase a laptop, and may require other specialized tech gear. Additionally, set aside around $1,200 a year for supplies and books.
- Transportation: From parking fees and gas to bus passes, each student’s out-of-pocket transportation costs will vary, depending on the school and its location. For example, the average transit costs for commuter schools like community colleges is about $1,800 per year.
- Health Insurance: Many schools require health plans that meet minimum requirements. If your current plan doesn’t, your student may need to purchase an institutional plan. These may cost between $2,000 and $4,000 per year.
How much do students actually pay for a college education?
It’s important to note that it’s common for students to pay much less for tuition than the listed price—especially at private schools.
As College Data points out, the average advertised price for tuition and room and board at private colleges is $60,000. However, what students actually pay for a private college education averages less than half—about $28,000 per year.
Actual public schools, costs (on average) are also lower than listed amounts, but the impact is a little less. In-state tuition and board rates average about $35,000, with actual costs coming in at closer to 20,000.
This doesn’t mean that you should assume that you’ll pay less than listed costs. What your student will pay will depend on the school, living situations, and the availability of scholarships and need-based aid. It simply means that calculating costs can be complex, and you can’t completely rely on posted data to understand your students’ real-world experience.
Saving Early: College Savings Plans
Even if your student receives a full scholarship, higher education is never free. Saving for college using a college savings plan has numerous benefits, including reducing tax advantages and flexible usage—even if your student doesn’t end up needing everything for college. And the best part of saving for college is that you’ll earn interest on your money, rather than pay interest to a lender. Let’s explore a few options available to students (and the people who help fund their education!).
Coverdell College Savings Accounts
Coverdell Education Savings Accounts (ESAs), formerly known as Educational IRAs, are a popular option for college savers. Not only are they an affordable choice (maximum contribution is only $2,000 per year), but they also offer exceptional flexibility.
While your contributions won’t earn you a tax deduction, all the money you save will grow tax-free, and withdrawals from the account for designated educational expenses is also free from tax. They can be used to pay for higher education expenses, as well as grade school. If your student is fortunate enough not to need these funds for educational, they can be rolled into an account for another family member, or can be withdrawn with only a 10% penalty (often less than what would be paid in taxes if the funds were in a different investment account). You may also be able to roll over Coverdell funds into a 529, if you decide that makes more sense for you or your student.
When you open a Coverdell Education Savings Account at F&M, you can enjoy the tax advantages of an ESA paired with the secure, fixed returns of a CD. Reach out to us to learn more about this option.
529 Plans
In addition to Coverdells, many families choose to boost their education savings through the use of a 529 Savings Plan. A tax-advantaged savings plan, 529s are typically sponsored by states, and offer savings on state income taxes (deduct up to $4,000 per year in Virginia). Additionally, like Coverdell ESAs, contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses, such as tuition and books, are also tax-free.
These plans can be used for a variety of costs including college and related expenses, student loan repayment, K-12 tuition, and other qualifying education programs like certain apprenticeships. If your student doesn’t end up needing them, leftover funds can even be rolled over into a Roth IRA. Visit Virginia529, Virginia’s 529 Plan program, to learn more about this option.
Financial Aid and Student Loans
Federal aid plays a crucial role in making college and graduate school accessible to millions of students across the US, and understanding federal financial aid and loans can help you and your student make informed decisions about how to pay for their higher education. Let’s take a closer look at how to apply for aid, the types of aid available, and alternatives for individuals who need additional funding.
Understanding the FAFSA
The Free Application for Federal Student Aid (FAFSA) is a form that students can complete to determine their eligibility for financial aid. Aid is based on need and can come in the form of federal grants like the Pell Grant, federal student loans, and work-study employment.
To complete the FAFSA, students should visit the official FAFSA website, create an FSA ID, and fill out the application online. Students should be prepared to provide specific information about their and their family’s income, assets, and other financial details and should have their Social Security Number, tax returns, and bank statements ready. Once submitted, the FAFSA information is processed, and the student receives a Student Aid Report (SAR) summarizing their eligibility for federal aid. This report is also sent to the colleges listed on the application, which then determine the specific aid package each student will receive.
Application deadlines are generally June 30—so be sure your student submits theirs on time and each year!
Federal vs. Private Student Loans
The FAFSA will provide details on a student’s eligibility for federal student loans, which can be used to cover costs not covered by savings, grants, and scholarships. Additionally, PLUS loans for parents and private loans may be available.
Subsidized and Unsubsidized Federal Loans for Students
Federal student loans are designed to cover tuition, room and board, textbooks, and other educational expenses and are paid out directly to the school. Unlike private loans (more on these later), federal student loans often have lower interest rates and more flexible repayment terms, making them a more favorable option for students.
There are two main types of federal student loans: subsidized and unsubsidized. Subsidized loans are need-based and offer the advantage of the government paying the interest while the student is in school (at least half-time), during the grace period, and during deferment periods. Unsubsidized loans, on the other hand, are not need-based and interest accrues from the time the loan is paid out.
PLUS Loans for Parents
Parent PLUS Loans are federal loans that parents can use to help pay for their children’s higher education. Unlike other federal student loans, Parent PLUS Loans require a credit check, and the interest rate is typically higher. Additionally, repayment begins immediately after the loan is fully paid out (though deferment options are sometimes available).
Whether Parent PLUS Loans are a good idea for your family depends on your financial situation. They can be a useful resource for families who need additional funds to cover educational expenses and have a solid plan for repayment. However, they can also pose a significant financial burden due to their higher interest rates and immediate repayment requirements, so families should carefully consider their ability to repay the loan and explore other funding options first. As a parent, it’s always best to save in advance for your children’s education over paying on a loan with interest.
Private Loans
Private lenders like banks and credit unions also offer loans to cover educational expenses. These loans can help bridge the gap between other kinds of funding and savings. And private loans can offer higher borrowing limits and sometimes be more flexible in their terms.
Drawbacks of private loans are that they often have higher interest rates than federal loans, and their terms are based on the borrower’s creditworthiness and therefore can vary widely. Additionally, private loans won’t come with some major benefits that federal loans have, like income-driven repayment plans and forgiveness programs—students (or parents) have to repay them—and on schedule—no matter what their financial picture looks like, or face negative credit consequences.
Federal Grants
Unlike loans, government education grants don’t need to be repaid. While most federal grant money is aimed at students with financial need, there are also opportunities for students who give back to the community through service or careers in education. Here are the most commonly available federal grants:
- Federal Pell Grants: These grants provide financial aid to undergraduate students with exceptional financial need, helping cover tuition, fees, and other educational expenses.
- Service Grants: Typically provide funding for students who participate in community service or volunteer work, these grants encourage civic engagement and community involvement.
- FSEOG: These grants are awarded to undergraduate students with exceptional financial need. Priority is given to Pell Grant recipients, and the amount ranges from $100 to $4,000 per year.
- TEACH Grants: This grant provides up to $4,000 per year to students who intend to teach in high-need fields at low-income schools. Recipients must agree to teach for at least four years within eight years of completing their program. If they don’t, the grant converts to a loan.
Work-Study
Finally, students may qualify for “Work-Study” through their FAFSA. Federal Work-Study is a financial aid program that provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay for their education. These jobs are often related to the student’s field of study and are available on-campus or with approved off-campus employers.
If your student doesn’t qualify for Work-Study, or isn’t thrilled with the options available, keep in mind that they can always find independent part-time work off-campus, as well as paid internships. To jump start their career path, it’s always best to find work related to their field. However, students should also prioritize jobs that don’t interfere with their studies, keeping hours worked manageable.
Scholarships and Virginia Grants
Scholarships are typically awarded based on academics, athletic ability, special affiliations, and other achievements. Scholarships can be offered by school financial aid offices or found through private organizations like foundations, corporations, nonprofits, and other community organizations. As we mentioned earlier, grants are usually need-based, and these include local grants like those offered through Virginia’s state government.
How do you find and apply for scholarships?
Searching for scholarships can be a big undertaking because there is such a wide range of sources and opportunities—but can be well worth it if you are able to reduce tuition costs.
There are many national and local scholarship programs for students available, and some with very niche requirements, with most requiring no fee to apply. It’s best to apply for scholarships at the start of the 11th grade year, though some have specific requirements—so always read the fine print. Here are the key places where you can look or inquire about scholarships:
- Financial Aid office at the college
- High school counselors
- US Dept of Labor’s free Scholarship Finder
- Your local library
- Local foundations, community or religious organizations, local businesses
- Professional organizations related to field of study
- Student’s or parent’s employers
- College Board’s Big Future Scholarship Directory
At F&M Bank, we offer our own scholarship opportunity, in conjunction with the Virginia Banker’s Association. Senior students can participate in “Bank Day” in March, where they will learn about careers in banking and financial services and write an essay based on their experience for a chance to be awarded scholarships of up to $7,500. To learn more about this opportunity, visit our page: VBA Bank Day Student Scholarship Program,
Virginia State Scholarships and Grants
Lastly, if your student is studying in Virginia, they may qualify for aid through our state. Though not a full list, here are just a few of the grant opportunities available to VA students:
- Virginia Guaranteed Assistance Program (VGAP): Covers in-state tuition plus a book allowance. Requirements include Virginia high school graduation, a minimum 2.5 GPA, and dependent student status for federal aid. Renewable for up to three years with continuous full-time enrollment, Virginia residency, and maintaining at least a 2.0 GPA.
- Virginia Commonwealth Awards: Up to $9,000 per academic year, with priority for the applicants with the greatest need who do not qualify for VGAP.
- Virginia Teaching Scholarship Loan Program: Up to $10,000 per academic year. Nominated by the School of Education and Human Development, recipients must teach in critical shortage areas in Virginia, with repayment required if the teaching obligation is not fulfilled.
- Gear Up Virginia Scholarship Program: Provides up to $5,000 per academic year for selected students, starting from seventh grade, to enhance college readiness and increase enrollment rates.
- Two-Year College Transfer Grant Program (CTG): Offers $1,000 for students transferring from a Virginia two-year college to a four-year institution, with an additional $1,000 for certain programs.
Prepare for College Costs with F&M Bank
When you or the student in your life is preparing to go to college, there are so many considerations to make—and how to pay for it is often one of the biggest challenges.
At F&M Bank, we want to support the higher education efforts of our customers and their loved ones. We can help demystify the financial planning process, exploring cost-effective options including our Coverdell Education Savings Accounts to help reduce your out-of-pocket spending.
Reach out to us today or visit your local branch in the Shenandoah Valley to learn how we can help!
