Articles > Saving for Post-Secondary Education

Paying for College

Given how much the cost of college increases over time, saving for your child’s future education may seem like a drop in the bucket. It is true that U.S. households use a variety of sources of money beyond savings to fund their children’s education, but saving for college plays a special role in helping pay for school. Saving for college can help students and parents reduce their reliance on higher cost borrowing, and can help children form “college-bound identities”–expectations about going to college and strategies about how to get there. Cost is a common barrier to higher education, and saving is still an important way to reduce cost as an obstacle.

Families and Students Use a Mix of Funds to Pay for College

For many families, the point of saving for college is not to save enough to cover all costs of a college education. The following chart shows how the average U.S. household paid for college in 2015 (Source: Sallie Mae, 2015). Parent income and savings is the biggest category at 32%, with students contributing another 11% through their own income and savings. Perhaps most surprising, student borrowing only accounts for 16% of all payments. The exact mix of funds varies from family to family, but it is clear households use a mix of funds to pay for college.

Pie chart of what the average student paid for college in 2015

Financial Aid Comes in Many Forms

Financial aid refers to several sources of funds, not just grants. Different types of financial aid fall under four categories:


Grants are offered by the government and some educational institutions. They do not need to be repaid. Grants may be need-based (for example, based on income), merit-based (based on student performance), or based on some other criteria.


Like grants, scholarships do not need to be repaid. Scholarships are offered by educational institutions and private organizations. How scholarships are awarded varies–for example, some may be awarded for academic achievement, but others for a wide variety factors. One place to look for scholarships is

Student Loans

Loans are offered by the federal government and private financial institutions. Loans must be repaid with interest. A variety of loan options are available, and some students are eligible for subsidized loans that come with lower interest rates and payments deferred until graduation.

Work Study

Students may be eligible for subsidized employment at a school-based jobs. Work study earnings generally do not count against students’ eligibility for other types of financial aid and could increase need-based financial aid.

A 2015 survey of found that 37% of college freshman had need-based grants or scholarships, and 52% had merit-based grants or scholarships. In addition, 21% of freshman received work study, 27% received federal Pell Grants, and 44% reported using aid that must be repaid including loans (Cooperative Institutional Research Program, 2015).

Incoming Students Need to Fill Out the “FAFSA”

The availability of different types of financial aid depends on a variety of factors, and application requirements vary. One critical step for incoming students is to fill out the “FAFSA“–the Free Application for Federal Student Aid–at Filling out the FAFSA as early as possible lets families determine the types and amount of financial aid they are eligible for from the federal government. Colleges often have their own processes for determining financial aid, and private scholarships (for example, from an employer) also have their own application processes. The FAFSA must be completed each year and is the foundation of critical sources of financial aid.

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