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Building a College Funding Plan Before Borrowing

Paying for college usually involves several possible sources of money, each with different conditions and long-term effects. Grants, scholarships, work, payment arrangements, and loans should be considered together rather than treating borrowing as the automatic starting point. Building a funding plan helps you compare what must be repaid, what depends on continued eligibility, and what the remaining costs mean for your household.

Adapted from educational material published by the Consumer Financial Protection Bureau and Federal Student Aid, U.S. Department of Education; source publication or review date: 2024-05-14. Fynoptic has edited and organized the material; additional references used for updates are listed below.

Financing a college education is a significant investment, and there are a number of options that may help you after college.

You have choices about how to pay for college. Understanding your options can help you make the right decision for your situation. It’s important to first research how you can pay for college without loans. But if you need additional assistance, it’s generally best to apply for grants, scholarships, and then federal student loans before private loans. Any of these options can be used along with funds from independent higher education savings or a 529 savings plan, an investment account typically sponsored by states for families to save money on future educational costs.

What are college grants and scholarships?

Grants and scholarships are a type of financial aid that doesn’t have to be repaid. Grants are often need-based, while scholarships are usually merit-based.

Start by researching available scholarships and grants and applying for as many as you can. Start early so you can plan ahead and know what other forms of financial assistance you’ll need.

What are tuition payment plans?

Tuition payment plans, also called tuition installment plans, are short-term payment plans that split your college bills into equal monthly payments.

Payment plans generally vary by college or university, but in addition to breaking up the payments, schools usually don’t charge interest. They may, however, have up-front fees or require a larger initial payment than subsequent installments.

The CFPB has observed varied and sometimes inconsistent disclosure of terms, forced enrollment, high late fees, and consumer right waivers among some tuition payment plan products. Be sure to read the terms and conditions and fully understand them before choosing a tuition payment plan.

What is work study?

Federal work study programs provide part-time jobs for undergraduate and graduate students to help pay for their education expenses. Work study programs are available through your college or university and are based on your school’s funding level, the availability when you apply, and your financial need.

Ask your financial aid office about the options for getting paid for work-study. At most schools, work-study money cannot be used to cover direct costs (like tuition, on-campus housing, and meal plans), because you must pay those bills before you earn the work-study funds.

What are income share agreements?

Income share agreements (ISAs) are a type of private education loan where you receive money to pay for your education and you promise to make future payments based on a percentage of your income. This means that the higher your salary, the higher your ISA payment. Payment is complete once you have repaid a defined amount, or you have reached a maximum number of payments.

Because an ISA may pose unique risks to borrowers and can often cost more over the life of the loan than traditional student loan products, compare scholarships, grants, and eligible federal student loans before entering into an ISA, and limit borrowing to what you need. If you’re considering taking on more than one ISA, keep in mind that each one requires a percentage of your income, so you’re committing an additional percentage of your income with each new agreement. Further, if you already have student loan obligations, you will be required to pay those in addition to paying a percentage of your income under the terms of your ISA contract, which may lead to excessive debt. Be sure to read the terms and conditions carefully and fully understand them before opting for an ISA. ISAs are generally subject to federal consumer financial laws.

Federal vs. private student loans

Even after considering other financial assistance programs, you may still need additional help to pay for college through federal or private student loans.

Federal student loans are provided through the U.S. Department of Education. Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS loans have different eligibility rules. Private student loans are provided by banks, credit unions, and other private lenders, with varying rates and terms, and do not offer the same federal protections.

Federal borrowing rules changed on July 1, 2026. New graduate and professional borrowers generally cannot receive Grad PLUS loans, and new limits apply to graduate, professional, and Parent PLUS borrowing. Some continuing students qualify for a temporary exception. Before building a funding plan around a particular loan amount, ask the school’s financial aid office which current loan limits and transition rules apply to your program and borrowing history.

Key differences between federal and private student loans

Federal Student Loans Private student loans
  • Fixed interest rates, meaning your interest rate will stay the same over time
  • Income-driven repayment plans base the amount you owe each month on your income
  • If you experience financial hardships, federal loans allow you to temporarily reduce or postpone payments
  • For Direct subsidized loans, the federal government will subsidize–pay the interest on–your federal student loan while you are in school
  • Some have variable interest rates, meaning your payments can change and increase over time if your interest rate changes
  • Repayment terms are generally not as flexible as federal student loans and vary by lender
  • Private loans may or may not have forbearance options that allow you to reduce or postpone your payments

Through eligible federal Direct loans, you may qualify for Public Service Loan Forgiveness if you meet the qualifying employment, loan, repayment, and 120-payment requirements. Other income-driven repayment plans can discharge a remaining balance after their required repayment period, which varies by plan and borrower. The SAVE plan has ended; do not build a borrowing decision around its former forgiveness terms. Review Federal Student Aid’s current plan comparison for eligibility and repayment periods. Teachers may have additional opportunities under the Teacher Loan Forgiveness Program. Compare grants, scholarships, savings, and eligible federal loans before considering private borrowing, and borrow only what your education budget requires.

Before you decide

List the full education costs and separate funding that must be repaid from funding that does not. Check conditions and timing for each source, then evaluate any remaining borrowing using current terms and a realistic repayment plan.

Sources and further reading

The cited U.S. government source text is in the public domain. Sources were accessed October 27, 2026. Fynoptic is independent and is not endorsed by the agencies. Consult the linked sources for subsequent updates.

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