When you look at the sticker price of a college education, whether it’s $20,000 a year at a state school or twice that at a private college, it may seem totally out of reach.

A college degree is supposed to earn you buckets of money over time, but how on earth will you pay for it now?

Or you might expect that if you can’t pay for college, financial aid will cover the cost. After all, politicians such as President Barack Obama and Senator Elizabeth Warren have suggested a college education is the ticket to the American dream.

The Truth

The truth sits squarely in the middle of these two oversimplified notions. Financial aid exists to support families who can’t write a check for a college education up front, but that doesn’t mean all of your tuition will be covered and you won’t need to take out additional loans.

The key question to ask is, “How can I find the best deal and take on the least financial risk and obligation in exchange for my degree?"

Unfortunately many students and families have unrealistic expectations about how they will pay for school.

“Students are vastly overestimating the amounts of grants and scholarships that they’ll be receiving," says Heather O’Leary, principal analyst at Eduventures], a higher education research and consulting firm based in Boston.

The grants and scholarships that O’Leary refers to are indeed available from colleges, charitable organizations, and federal and state governments. Grants and scholarships are essentially free money, which may hinge on your academic standing, chosen major, or other stipulations. Unfortunately in most cases, loans are a reality that cannot be avoided.

Are Loans Worth It?

Loans can lead to financial obligations for years to come. The $100,000 question is — are they worth it?

Most educational loans include favorable terms you won’t find elsewhere. For example, federal loans are available to students with poor or no credit history. Private lenders and banks would not extend credit to those students. Federal educational loans are indeed a steal, in the sense that without them it might be entirely impossible for some students to pay for college.

It is certainly to your advantage to take on as few loans as possible. When you are considering financial packages from colleges, you will probably see a range in the size of loans as well as the interest rates of loans.

As you consider schools, look for the best deal. The size of the loan is an important factor, but also consider the interest rate. A higher interest rate means that the amount you have to pay will rise faster. Finally take note of when the loan will begin to accrue interest. Some loans are interest-free for the time you are in school. That is a steal.

Paying It Off

For all the media attention to “crushing," or “crippling" student loan debt, a college degree will likely pay for itself and lead to financial success in the long run.

“If the option is school or no school, taking on that debt makes sense," says O’Leary. “Even if you are on the extreme end with $100,000 of student loan debt, that premium is still there."

According to the Bureau of Labor Statistics in its “Current Population Survey," individuals with bachelor’s degrees earn about $25,000 more each year than those without four-year degrees.

To access these opportunities to fund your education, it will be necessary to fill out the Free Application for Federal Student Aid. You and your parents will need to submit information on earnings from the calendar year prior to when you will begin your education.

Sources:

CPS News Releases. (n.d.). U.S. Bureau of Labor Statistics. Retrieved May 14, 2014, from bls.gov

Obama, B. (2013, July 24). Remarks by the President on the Economy — Knox College, Galesburg, IL. The White House, Office of the Press Secretary. Retrieved May 14, 2014, from whitehouse.gov

O’Leary, H. (2014, May 12). Interview by Leo Brown [Phone].

Stiglitz, J. E. (2013, May 12). Student Debt and the Crushing of the American Dream. The New York Times. Retrieved May 14, 2014, from opinionator.blogs.nytimes.com

Warren, E. (2014, January 1). Education. Elizabeth Warren for Senate. Retrieved May 14, 2014, from elizabethwarren.com

Waterhouse, G. (2013, August 25). Dreams deferred, denied by crushing student debt. The Boston Globe. Retrieved May 14, 2014, from collegedata.com