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Paying for college can be challenging. According to CollegeBoard, the average cost of a four-year degree at a state university is $9,970 per year and $34,740 per year at a private institution. And this doesn't even include room and board, books or supplies. The high expenses associated with earning a degree can often hinder people from attending college. It's also resulted in record student loan debt, with the nation collectively owing around $1.3 trillion. But attending college doesn't have to break the bank. There are many options for aid including scholarships, grants and student loans that can reduce the cost of college.

Student Loans Need to Be Paid Back

With the cost of education skyrocketing, many students have no option but to take out loans. While the federal government offers student loans, it's usually not enough to cover tuition let alone room and board and supplies. As a result, families often have to tap into the private lending market.

When it comes to student loans, a major difference between one that's federally backed and a loan from a private lender is the interest rate. The U.S. federal government charges an interest rate of 4.45 percent on direct subsidized loans and direct unsubsidized loans for undergraduates and 6 percent on direct unsubsidized loans for graduate students and professionals. The federal government's direct plus loans for parents charges an interest rate of 7 percent.

With a private loan, the interest rate is going to vary from one lender to the next, but on average a variable rate private loan has an interest rate of 7.81 percent while a fixed rate private loan has an interest rate of 9.66 percent. While borrowers can often get more money with a private loan, it will end up costing them more in the long haul. If a student doesn't qualify for a private loan on his or her own they can bring on a cosigner to back them up.

It's also important to keep in mind that student loans are one of the few types of debt that the government doesn't forgive if the borrower files for bankruptcy.

Scholarships Give Students Free Money

Unlike a student loan that has to be paid back, scholarships are free money that is awarded to someone. Scholarships can come from the college or university, a nonprofit, a corporation or even wealthy individuals.

When it comes to scholarships, they are typically awarded based on criteria such as:

  • Financial need for lower-income students
  • School-based for students attending specific universities
  • Merit-based for students with high academic scores or exceptional leadership and community service

Grants Are for Those With a Need

Just as scholarships provide you with money that you don't have to pay back, grants operate in a similar fashion. The biggest difference, however, is that grants typically go to students with financial need — which isn't always an important factor with scholarships. Grants come from the federal government, state governments, colleges or universities, private companies and nonprofits. There are also grants for those who are associated with the military or in groups that are underrepresented by colleges and universities around the country.

Final Thoughts

While countless graduates have dealt with student debt, you can reduce the amount you'll have to pay back by applying for grants and scholarships. Even if you're not awarded a scholarship, student loans can help you through the process of paying for college. Knowing the interest rate, the amount you will have to pay back and an idea about a projected salary in the future can go a long way in making sure you are getting a return on your investment upon graduation.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

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