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A Pell Grant is a type of federal funding that’s awarded to eligible undergraduate students who have exceptional financial need, and is provided to help pay for their education. In general, unlike a loan, Pell Grants usually don’t need to be repaid. The maximum amount that you can receive varies each year, with the 2023-24 school year’s maximum being $7,395.00.

Factors that play a role into what you might receive include your Expected Family Contribution (or EFC), the cost of attending your specific school for your specific program, whether you’ll be attending full-time or part-time, and whether you intend to attend school for the entire academic year.

Applying for a Pell Grant

If you believe you might qualify for the Pell Grant, then step one is the same as for every type of federal funding for students — to fill out the Free Application for Federal Student Aid (FAFSA®). Note that you’ll need to fill out this form every year that you’re attending school to apply for federal aid, including but not limited to the Pell Grant.

If you receive Pell Grant funding, then your school can apply these funds to your school costs or pay you — or use a combination of these two methods.

Pell Grant Eligibility Requirements

In order to qualify for a Pell Grant, you’ll need to meet the grant’s eligibility requirements.

Income

Pell Grants are awarded to individuals who exhibit exceptional financial need. There are no official income limits for the Pell Grant. Instead, award amounts are determined by your Expected Family Contribution, the program cost of attendance, and your status as a full- or part-time student.

Academic Achievement

Renewal of the Pell Grant each year is based on the student making satisfactory academic progress. The specific policy for academic progress will be outlined by your school, but it generally includes things like a minimum GPA and the number of class credits you need to complete in order to make progress toward your degree.

Completing FAFSA

To apply for the Pell Grant, you’ll need to fill out the FAFSA. In order to continue receiving the Pell Grant, you’ll need to fill out the FAFSA each year you are enrolled in school.

Recommended: FAFSA Guide

Being an Undergraduate Student

Pell Grants are generally only awarded to undergraduate students. Though, there may be some exceptions for students enrolled in post-baccalaureate teacher certification programs.

Maintaining Eligibility for a Pell Grant

To maintain your eligibility for a Pell Grant, you’ll need to stay enrolled in your undergraduate program. Additional Pell Grant requirements, among others, include that you need to either be a U.S. citizen or an eligible non-citizen.

You’ll also need to have a valid Social Security number and must be enrolled or accepted for enrollment in an eligible educational program.

This program is available to qualifying students for 12 semesters.


💡 Quick Tip: Fund your education with a low-rate, no-fee SoFi private student loan that covers all school-certified costs.

Loans vs Scholarships vs Grants

Before taking a deeper dive into federal Pell Grant eligibility, it can help to delve into the differences between student loans, scholarships, and grants.

Recommended: The Differences Between Grants, Scholarships, and Loans

Student Loans

Student loans are borrowed funds that need to be repaid, typically with interest. There are both federal student loans that the government offers, and private ones offered by financial institutions.

Federal Student Loans

Federal student loans are offered to students based on data included in the FAFSA. Some federal student loans are unsubsidized, while others are subsidized. With an unsubsidized loan, the interest begins accumulating as soon as funds are dispersed. So, while you’re in school, even if you aren’t making payments yet, interest is accruing.

With a subsidized loan, though, the government will pay your interest until you graduate or drop below half-time status.

You usually need to start paying back federal loans after the grace period, which is six months after you graduate or your enrollment drops below half-time.

Private Student Loans

Private student loans are usually used after federal student loan options have been exhausted. They may have a fixed or variable interest rate, and do not come with the same borrower protections as federal student loans. Different lenders may have different terms and rates and they’ll likely evaluate a potential borrower’s credit score and history, among other factors, to make their lending decision.

Recommended: Private vs Federal Student Loans

Scholarships

There are thousands of scholarships available to help students finance their college education. Some are based on financial need, others on merit, and sometimes both. The beauty of scholarships is that, unlike loans, they usually don’t need to be repaid. It can take some time to find the right scholarships for your situation.

Your high school counselor or college advisor may be able to help, and there are scholarship databases that you can search. Scholarships come with different requirements and different deadlines, so it typically helps to start early.

Grants

Like scholarships, grants typically don’t need to be paid back. They can be obtained from a variety of sources, including state governments, the federal government, your university, and private/non-profit organizations.

To receive a grant, you often need to meet financial criteria, and this kind of funding is usually based on financial need. And, this brings us full circle to a popular type of grant for college students today: the federal Pell Grant.

How Do Pell Grants Work?

To become eligible, you must fill out the FAFSA. If it’s determined you’re an undergraduate student with exceptional financial need — and you haven’t yet earned a bachelor’s degree (or a graduate or professional one) — then you may qualify for this grant funding.

Because each school that participates in the federal Pell Grant program receives enough funding annually to pay the full amount of Pell Grants to eligible students, if you’re eligible, you’ll receive the full amount you qualify for — and, if you qualify for other student aid, this does not have an impact on your Pell Grant eligibility.

Understanding Expected Family Contribution

As mentioned earlier, your Expected Family Contribution (EFC) plays a role in what you’ll be awarded. This is an index used by college financial aid departments that allows them to calculate how much financial aid you’re eligible to receive if you attended their school. The financial aid departments make these calculations based upon information provided in your FAFSA.

Sometimes, students qualify for 150% of scheduled Pell Grants, and you might hear this referred to as “year-round Pell.” That’s because, sometimes, you can also receive Pell Grant funding during the summer semester. If this interests you, you’ll need to talk to your school’s financial aid department about the requirements for this type of Pell Grant.

Additional Pell Grant Funding for Military Service in Afghanistan or Iraq

Students may be eligible for more funding if their parent or guardian was a:

•   member of the U.S. military who died as a result of service performed in Iraq and/or Afghanistan, post 9/11

•   public safety officer who died in active service in the line of duty

Eligibility requirements also include that, at the time of this death, you were younger than 24 years old or were enrolled in college or a career school on at least a part-time basis. If you qualify and are eligible for a Pell Grant, then your eligibility will be calculated as if you had an EFC of zero. If you’re attending less than full-time, then payments will be adjusted accordingly.

What Sorts of Expenses Can the Pell Grant Be Used For?

The Pell Grant can be used to cover qualified education-related expenses, including:

Tuition

Pell Grant funds can be used to pay for the cost of tuition.

Educational Expenses

You can use your Pell Grant to pay for other education-related expenses, such as the cost of books, lab fees, or other supplies like a graphic calculator or other expenses related to your course of study.

Living Expenses

It’s also possible to use the Pell Grant to pay for living expenses. This could cover room and board at your college or university. Or, if you live off-campus, this could cover the cost of rent.

Is There Ever a Reason Not to Take a Pell Grant?

Because the Pell Grant does not typically need to be repaid, it is a desirable type of financial aid. If you expect to earn a larger award in the future — for example if you plan on transferring to a more expensive institution or anticipate your EFC to be less — you may consider declining your award in the hopes of qualifying for a larger award in future years.

When You Still Need More Money

The FAFSA, which is required to qualify for the Pell Grant, is also required for other forms of financial aid. In your financial aid award, you’ll also be able to review any scholarships, grants, work-study, or federal student loans you may have qualified for.

Generally, scholarships, grants, and work-study are relied on before student loans. Then federal student loans, particularly Direct Subsidized Loans which, as mentioned, do not accrue interest until after a student graduates or drops below half-time enrollment.

Private Scholarships

Thoroughly investigate scholarship opportunities, as well as grants. To increase your chances of successfully receiving these kinds of funding, it can really help to carefully prepare to apply for them. Materials you will likely need include transcripts, personal references, and a personal statement.

You can ask a trusted adult, whether that’s a teacher, parent, or guidance counselor, to read over what you’ve written. And, although some of the scholarship or grant amounts might at first look small, multiple smaller awards can really add up.

Part-Time Job

If you don’t qualify for or can’t find a work-study job, you can still seek employment on your own. Colleges often provide job boards that list opportunities for employment, either on or off campus.

You can also check job sites that aren’t connected with the college, and ask guidance counselors, professors, and friends and family for leads.

No matter how you find a job, having one can help you to earn money for college while also helping you to build a resume that could prove valuable as you look for full-time employment after graduation.

Private Student Loans

You can fill in the gap between what you can obtain with federal student loans, scholarships, and grants with private student loans. These loans differ from federal loans in many ways, with federal ones having fairly static criteria, including fixed interest rates, multiple plans for repayment, and options for loan forgiveness.

Private loans, as mentioned, are offered by financial institutions, such as banks and online lenders. To request funds, you fill out an application, just like you might for a car loan, a mortgage, or a personal loan. To qualify, the lender will typically review your income and your credit score — and those of your cosigner, should you need one — among other financial factors.

Private lenders set their own criteria for loan approvals, as well as their own terms. Private student loans can come with multiple benefits and, in many cases, they can provide the funding that would ultimately make a difference between being able to pay tuition — or not.

There are also downsides to borrowing private student loans. They don’t have the loan forgiveness programs that are available with federal student loans, or income-driven repayment plans. This means that private student loans are generally considered only after all other options have been evaluated.

If private loans may make sense for you, shop around to compare lenders and find the option that is best for you. To help determine what your payments might be with private loan funding, you can use this student loan calculator to get an idea.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

The Takeaway

Pell Grants are awarded to students who exhibit exceptional financial need. Pell Grants do not typically need to be repaid and the amount awarded to each student may vary based on their personal financial circumstances. The maximum award for the 2023-24 school year is $7,395.00.

Other options for paying for college include federal student loans, scholarships, work-study, and grants.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What disqualifies you from getting a Pell Grant?

The Pell Grant is awarded to undergraduate students who demonstrate exceptional financial aid. To determine this, factors like your family’s Expected Family Contribution (EFC) and the cost of your school will be evaluated. Students who don’t demonstrate exceptional financial need generally won’t qualify for a Pell Grant.

Individuals who are incarcerated are also not eligible to receive a Pell Grant.

Will you ever need to pay back a Pell Grant?

In most cases, you won’t be required to repay a Pell Grant. In certain situations, a student may need to repay all or a portion of their grant — such as if they dropped out of school or dropped from full-time to part-time enrollment.

Is there a minimum GPA required for a Pell Grant? Does it have to be maintained for your whole degree?

In order to maintain eligibility for a Pell Grant, you’ll need to make satisfactory academic progress toward your degree. The specific requirements will be outlined by your school, but may include a minimum GPA.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIS0124017

Most of us simply don’t have the cash on hand to pay for college or graduate school out of our pockets. For the 2023-24 school year, the College Board estimates it costs $41,540 on average annually to attend a private non-profit four year university and $11,260 for in-state students at a public four-year school.

That means you might need to take out student loans to fund your education.To make sure you’re not in danger of defaulting on your loans or paying too much, you might want to understand some basics of student loans.

When you take out student loans, they’re either private or federal — meaning they either come from a private lender, like a bank, or are backed by the federal government.

Federal student loans are either subsidized or unsubsidized Direct Loans. There are also Federal Direct PLUS loans for parents or graduate and professional students. Interest rates for federal loans are set by Congress and stay fixed for the life of the loan. Federal student loans come with certain protections for repayment.

But what are the differences in the types of federal loans? When you’re weighing your options, you might want to understand some of the differences between a Federal Direct Unsubsidized Loan vs. a Direct Subsidized Loan vs. a private student loan, so you can evaluate all of your options.

What Is a Federal Direct Unsubsidized Loan?

The federal government offers two umbrellas of Direct Loans: unsubsidized and subsidized. When you take out a loan, the principal amount of the loan begins to accrue interest as soon as the loan is disbursed (when the loan is paid out to you). That interest has to be paid or it is added onto the loan amount.

Subsidized Federal Student Loans

On a Federal Direct Subsidized Loan, the federal government (specifically, the US Department of Education) pays the interest while you’re in school, during the six-month grace period after you graduate, and if you temporarily defer the loans. On a Federal Direct Unsubsidized Loan, you are responsible for paying all of the interest on the loan from the moment it starts accruing.

Since the interest is paid for you while you are in school on a subsidized loan, it doesn’t accrue. So the amount you owe after the post-graduation grace period is the same as the amount you originally borrowed.

Unsubsidized Federal Student Loans

On a Federal Direct Unsubsidized Loan, the interest accumulates even while you’re in school and during the grace period — even though you aren’t required to make any payments while in school.

The interest is then capitalized, meaning it gets added to the total principal amount of your loan. That amount in turn accrues interest, and you end up owing more when you graduate than you originally borrowed.

Of course, you can make interest payments on your unsubsidized loan while you’re in school to save yourself money in the long run. However, you’re not required to start paying off the loan (principal plus interest) until six months after leaving school.

For the 2023-2024 school year, the interest rate on Direct Subsidized or Unsubsidized Loans for undergraduates is 5.50%, the rate on Direct Unsubsidized Loans for graduate and professional students is 7.05%, and the rate on Direct PLUS Loans for graduate students, professional students, and parents is 8.05%. The interest rates on federal student loans are fixed and are set annually by Congress.

Origination fees for unsubsidized and subsidized loans is set at 1.057% for the 2023-2024 academic year.

Recommended: subsidized vs unsubsidized student loans

How Do You Apply for a Federal Direct Unsubsidized Loan?

The first step to finding out what kind of financial aid you qualify for, including Federal Direct Unsubsidized Loans and Subsidized Loans, is to fill out the Free Application for Federal Student Aid (FAFSA®).

Your school will then use your FAFSA to present you with a financial aid package, which may include Federal Direct Unsubsidized and Subsidized Loans and other forms of financial aid like scholarships, grants, or eligibility for the work-study program.

The financial aid and loans you’re eligible for is determined by your financial need, the cost of school, and things like your year in school and if you’re a dependent or not.

Who Qualifies for Federal Direct Unsubsidized Loans?

Federal Direct Subsidized Loans are awarded based on financial need. However, Federal Direct Unsubsidized Loans are not based on financial need.

To receive either type of loan, you must be enrolled in school at least half-time and enrolled at a school that participates in the Federal Direct Loan program. And while subsidized loans are only available to undergraduates, unsubsidized loans are available to undergrads, grad students, and professional degree students.

Pros and Cons of a Federal Unsubsidized Direct Loan

There are pros and cons to taking out federal unsubsidized direct loans.

Pros

•   Both undergraduates and graduate students qualify for Federal Direct Unsubsidized Loans.

•   Borrowers don’t have to prove financial need to receive an unsubsidized loan.

•   The loan limit is higher than on subsidized loans.

•   Federal Direct Loans, compared to private loans, come with income-based repayment plan options and certain protections in case of default.

Cons

•   Federal Direct Unsubsidized Loans put all the responsibility for the interest on you (as opposed to subsidized loans). Interest accrues while students are in school and is then capitalized, or added to the total loan amount.

•   There are limits on the loan amounts.

Recommended: Should I Refinance My Federal Loans?

The Takeaway

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students and are not awarded based on financial need. Unlike subsidized loans, the government does not cover the interest that accrues while students are enrolled in school. Unsubsidized federal loans are eligible for federal benefits like income-driven repayment plans or Public Service Loan Forgiveness.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIS0124015

College cost of attendance is an estimate of the total cost of attending college for one year. It includes the cost of one year of tuition, books, supplies, room and board, transportation, loan fees, and other personal expenses.

Here’s how to calculate the cost of attendance, why it matters, and how it can affect financing an education.

The Cost of Attendance for College

The cost of attendance (COA) for college is an estimate of the total cost of attending a college for one year. The expenses included in COA are outlined by federal law. As briefly mentioned, this estimate includes expenses such as the tuition and fees for one year of school, room and board, books and supplies, transportation costs, loan fees, and other personal expenses.

Cost of attendance is used to help colleges determine the amount of financial aid a student is eligible for, including grants, scholarships, and federal student loans.

The Difference Between Cost of Attendance and Tuition

Tuition covers the actual cost of academic instruction. COA, on the other hand, includes other expenses the student will likely incur in order to live. COA includes things like room and board, books and supplies, and transportation costs.

Schools are required to publish the COA on their website so the information is readily accessible to students. Schools also generally publish more than one COA. For example, state universities may list a COA for in-state vs. out-of-state students. Most colleges will provide multiple COAs based on different student scenarios, such as:

•   Part-time student

•   Full-time student

•   Off-campus living

•   On-campus living

•   Attending school with a dependent

The COA is an estimated average based on previous student spending and estimates, so your actual costs may be different than the COA.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

What Is the Average College Cost of Attendance?

Simply put, the cost of attendance is the estimated amount it will cost for a student to attend a school. If a school doesn’t run on a traditional fall/spring semester schedule, the COA may not be calculated to reflect a calendar year.

Think of COA as a rough budget for the year. It includes tuition and fees, along with expenses outside the classroom like food, transportation, and supplies.

According to The College Board, the average published cost for tuition and fees for the 2023-24 school year was $11,260 for students at public four-year institutions with in-state tuition and was $41,540 for students at private nonprofit four-year universities.

Recommended: What is the Average Cost of College Tuition?

What Does Cost of Attendance Include?

As mentioned, what’s included in a COA is defined by federal law. A college or university’s COA will include:

•   Tuition and fees: This includes additional expenses that could be required for a specific field of study, and fees associated with loans.

•   Books and supplies: This might sound like a silly line item, but students spend $1,240 on average on books and supplies, a College Board survey shows. (That may include the cost of a computer used for study.)

•   Transportation: This estimate includes how much it would cost to travel back and forth from school, and in some cases, can include the cost of keeping a car on campus (parking permits, etc).

•   Room and board: This estimates housing and food expenses. It will take into account if the student is living at home, on campus, or off campus.

•   Dining: Additionally, this line in the COA estimates how much a student may spend on dining, often using the campus meal plan as a guide.

•   Personal expenses: While the university doesn’t include this on its official bill, the school will estimate the cost of personal care, such as clothing, entertainment, and haircuts.

Cost of attendance can include more specifics based on a student’s need. The COA should reflect a student’s planned education, whether that be part time, full time, or even correspondence based. COA estimates come both directly from the school and from market research and data, meaning the trends change each year.

Recommended: Ways to Cut Costs on College Textbooks

Finding a School’s Cost of Attendance

Hunting down a university’s COA is an important first step in calculating the expenses around college and how to pay for it. Since legislation passed in 2011, it’s mandatory for U.S. two-year and four-year institutes to share the COA on their websites. However, that doesn’t mean it’s always easy to find.

One way to look for the COA online is to simply put “[NAME OF SCHOOL] + COST OF ATTENDANCE” into a search engine.

Or anyone can go the old-school route and call a college’s financial aid office to get the information over the phone.

A school will also include its cost of attendance on a student’s financial award letter.

College Cost Attendance List

The COA for colleges can vary quite dramatically depending on a school’s location, whether it is private or public, and other factors. Some programs may have additional fees and costs (like lab fees) which could increase the cost of attendance for certain majors or programs.

The following table provides an overview of the published COA for undergraduate students living on-campus at several schools around the country during the 2023-2024 school year (unless noted with an asterisk, in which case it is the 2022-2023 school year).

*2022-2023 school year COA.

Can I Borrow More Than the Cost of Attendance?

It is generally not possible to borrow more than the cost of attendance for a school. Federal student loans are limited by law to the cost of attendance less than the amount of aid received. Often, private student loans have similar lending restrictions, though these are set by the lender.


💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

Cost of Attendance and Net Price

Figuring out a school’s COA matters because it can help students figure out the net price they’ll pay for school. The net price is what a student will pay out of pocket to attend an institution. How does a student get from cost of attendance to net cost? Expected family contribution.

Expected family contribution is a number that a college or university uses to calculate a student’s expected amount of financial aid. The formula to calculate the expected family contribution is established by law and includes not only information provided on the Free Application for Federal Student Aid (FAFSA®), but also:

•   Taxed and untaxed income

•   Assets

•   Benefits (e.g. Social Security, unemployment compensation)

•   Family size

•   Number of family members expected to attend higher education that year

Expected family contribution is neither the final amount a family or individual is expected to pay nor the exact amount of federal aid a student will get. It’s simply a calculation or estimate to help arrive at net cost.

Once a school has a student’s expected family contribution, it can determine net cost through these steps:

•   The school looks at a student’s individual COA, taking into account if they’ll attend classes full or part time and whether or not they’ll live on campus.

•   With financial information in hand, the school subtracts a student’s expected family contribution from the COA. The difference is the student’s financial need.

•   That financial need can be filled by merit aid, such as scholarships or grants, in addition to loans and other financial aid.

After aid, the amount left is a student’s net price. This is what would be paid out of pocket. Depending on a student’s finances and aid, net cost can be fuzzy. The Consumer Financial Protection Bureau has a free net price calculator to make the formula easier. Net price calculators can also be found on many college financial aid sites. These calculators generally take the COA and subtract scholarships or merit aid a student is eligible for.

Having a rough idea of net cost through the help of COA and expected family contribution can help students compare aid packages across schools. For instance, one college’s COA may be higher than another, but based on how generous the aid is, the net price could be lower at the school with the more expensive COA.

How COA Affects Student Loans

A school’s COA will influence a financial aid package an individual receives. Once a student selects a college to attend, the school will let federal and private lenders know how large a loan is needed.

In addition, regardless of a school’s COA, there are annual lending limits for federal student loans. For example, federal student loans for undergraduate programs are limited to $5,500 for first year dependent students. No more than $3,500 of this amount may be in subsidized loans.

Recommended: How to Get a Student Loan

Making the Right Choices

Understanding a school’s COA can help cover your aspirations. It’s essential to know when crunching numbers to fund an education.

But even after merit and need-based aid are applied, there still might not be enough to account for all expenses.

Paying for College

Students often rely on a variety of financing options when paying for college. Often the first step for students is filling out the FAFSA, which is how students can apply for all forms of federal aid, including federal grants, scholarships, work-study, and federal student loans. There are a lot of options so it’s important to understand the difference between grants vs. scholarships vs. student loans from a private lender. Here are a few other options that can help students pay for college.

Private Student Loan

Private student loans from lenders are available once all federal aid has been exhausted. Interested applicants will need to file individual applications with private lenders. Interest rates and loan terms are generally determined by an applicant’s personal financial factors such as credit score and income. Consider shopping around at a few different lenders to find the best rate and terms for your personal situation.

Applicants without an extensive credit history or a relatively low credit score may find that adding a cosigner to their application can help them qualify for a loan or qualify for more competitive rates and terms.

Additionally, an important note when comparing private student loans vs. federal student loans is that federal loans offer borrower protections that private loans do not. For this reason, private loans are generally borrowed as a last-resort option.

For those interested in pursuing a graduate degree, there are student loans for graduate programs available, too.

Credit Card

Schools may allow students to pay for their tuition with a credit card. Most schools do charge a fee (often between 2% to 3%) for this convenience, which can offset any rewards you may be earning on your credit card. In addition, credit cards have fairly substantial interest rates. Therefore, paying for tuition with a credit card may not make the most financial sense.

On the other hand, when credit cards are used responsibly, they can be helpful tools to help students establish and build their credit history. Students could use credit cards to pay for books, food, gas, or other transportation costs. Be sure to pay attention to interest rates and pay off your credit card each month to avoid credit card debt.

Personal Savings

If you have been saving for college, using those funds to pay for tuition or other college costs can help you avoid borrowing for college. When you borrow student loans to pay for college, you’ll end up paying interest, which increases the total amount you spend over the life of the loan. By paying for some expenses with savings, you may be able to reduce the overall bill.

Grants

Generally, grants, which are often awarded based on financial need, do not need to be repaid. Grants are available from the federal government, individual schools, and even some nonprofit organizations.

Recommended: Grants for College — Find Free Money for College

Scholarships

Scholarships are another type of aid that doesn’t require repayment. Often awarded based on merit or other personal criteria (like gender, ethnicity, hobbies, or academic interest), scholarships are available from a variety of sources such as the school, state or local governments, corporations, or nonprofit organizations. Review your school’s financial aid website and conduct an online search to find scholarships you may be eligible for.

The Takeaway

Cost of attendance (COA) is an estimate that includes the cost of tuition, room and board, books, transportation, and food and meals. The requirements for COA are outlined by federal law and each school is required to publish its COA on their website so this information can be easily accessed.

Students won’t necessarily be required to pay the full COA — things like scholarships, grants, and other forms of financial aid can reduce the actual net price a student ends up paying. That’s why it’s important to compare not only the cost of each school, but the financial aid package each school offers.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What does cost of attendance mean for college?

The cost of attendance (COA) is an estimate for the total cost of attending a college for a single year. The COA includes tuition, room and board, food and meals, books and supplies, transportation, and other miscellaneous personal costs. The items required for inclusion in the COA are outlined by federal law and each college or university is required to publish the details for the college’s COA on the school website.

What is the difference between cost of attendance and tuition?

A school’s tuition is the price for academic instruction. The cost of attendance includes the cost of tuition in addition to other expenses including room and board, books and supplies, transportation, and more.

How much does college cost per year?

The cost of college can vary based on many factors including your location, whether you attend a private or public university, if you receive in-state vs. out-of-state tuition, and the type of program you are enrolled in. According to The College Board, the average cost of attending a four-year nonprofit private institution was $41,540 during the 2023-24 school year. During the same time period, the average cost for tuition and fees at public four-year institutions with in-state tuition was $11,260.

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Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Mutual funds are a type of investment vehicle that rope together numerous types of securities in one basket. They’re similar to exchange-traded funds, or ETFs, in that way, but there are some key differences. They can provide investors with an easy and turnkey way to build a diversified portfolio, often with a manager watching over the fund.

The ABCs of Mutual Funds

Mutual funds are funds, or a basket of different securities, that are packaged together and sold, in shares or fractional shares, to investors.

Mutual funds were designed for people to get started investing with small amounts of money. You can think of them as suitcases filled with different types of securities, such as stocks and bonds. Buying even one share of the fund immediately invests you in all the individual securities the fund holds.

The primary benefit of mutual funds is instant portfolio diversification. Say you invest in a mutual fund that holds stocks of every company in the S&P 500. If one company in the S&P 500 goes bankrupt, your fund might lose some value, but you most likely won’t lose everything. But if your whole investment was in that one company’s stock, you’d lose all or most of your money.

How Mutual Funds Work

A mutual fund itself is actually a company that pools investors’ resources and invests it on their behalf. They create a fund of many different investment types, and manage it on behalf of the group of investors.

Mutual funds can be managed actively or passively. Passively managed funds attempt to track an index, such as the Russell 2000 (an index of 2,000 small-cap U.S. companies). In other words, if one company leaves the index and another one joins, the fund sells and buys those company’s stocks accordingly. The risk and return of these funds is very similar to the index.

Actively managed mutual funds attempt to beat the performance of an index. The idea is that with careful investment selection, they will get higher returns than the index.

Different Types of Mutual Funds

There are numerous types of mutual funds that investors can choose to invest in.

Breaking Down Various Mutual Fund Types

Mutual funds can invest in stocks, bonds, real estate, commodities, and more. There are tens of thousands of mutual funds that cover every investing strategy you can imagine. Those can include asset class funds, sector funds, or target date funds, among many others.

Asset Class Funds

Asset classes are groups of similar assets that share similar risks, such as stocks, bonds, cash, or real estate. Some funds specialize in a particular type of investment or asset class — for example, large cap growth stocks or high yield bonds. These mutual funds assume that you or your adviser will choose the strategic mix of funds that’s right for you.

Sector or Industry Funds

Some funds will attempt to represent all or most of the stocks in a particular sector or industry. What’s the difference? Sectors are broader than industries — for example, oil is an industry, but energy is a sector that also includes coal, gas, wind, and solar companies. The stocks in each industry or sector share similar characteristics and risks.

Target Date Funds

A target date fund will provide you with a mix of asset classes (for example, 20% bonds and 80% stocks). They assume you will terminate the fund some year in the future, usually when you retire, and they shift to less risky investments as the target year approaches.

Target-date funds are intended to be a generic, low-cost solution to retirement saving and. They can be a good choice for a 401(k) investment if you don’t have the time or expertise to pick funds.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

The Financial Mechanics of Mutual Funds

As mentioned, mutual funds pool money from a group of investors and invest it for them in various securities. That seems simple enough — but figuring out how to price shares is a bit more involved.

The Pricing Puzzle: Net Asset Value Explained

Mutual funds are companies, and investors purchase shares of the company. Share prices of mutual funds are also called net asset value, or NAV, and NAV corresponds to the net value of all the fund’s assets, with liabilities subtracted. Then, the number is divided by the number of shares outstanding.

In effect, investors can calculate share prices using the NAV formula if they wish.

Fee Structures: Costs Associated with Mutual Fund Investing

There are also costs associated with mutual funds. All mutual funds have some expenses, but they can vary a lot from one fund to another. It’s important to understand them, because fund expenses can have a big impact on your returns over time.

Another problem with actively managed funds is that they typically cost you more because funds are paying people who make investment decisions, and they are making more trades, which have transaction costs. As such, you may want to look out for operating expenses or transaction fees.

You won’t get a bill, but your returns on the fund will be reduced by the fund’s expenses. Some brokerage firms also charge commission for buying mutual funds.

The Pros and Cons of Investing in Mutual Funds

Like all investments, mutual funds have their pros and cons that investors should consider.

Benefits of Diversification and Professional Management

The two biggest pros or advantages of mutual funds are likely the built-in diversification that they offer investors, and professional management. The diversification element allows many investors to take a “set it and forget it” approach to their portfolio management, and many may find confidence knowing that professional fund managers are steering the ship.

Considering the Risks: No Guarantees and Potential for High Costs

Cons include the fact that there’s no guarantee in terms of returns (there never are when investing!), and the costs associated with mutual funds. As noted, mutual funds may incur additional costs compared to other investment types, depending on the individual fund. That may turn some investors off.

Taxes and Cash Drag: The Other Side of Mutual Funds

Taxes are another potential con for mutual funds, as investors will need to pay capital gains taxes on mutual fund payouts throughout the year — and they won’t have much control over that, either. And cash drag (or performance drag), which refers to the difference between returns between two investments when one incorporates trading costs, can be another thing for investors to think about.

Mutual Fund Investments and You

How can you determine if mutual funds are right for your strategy or portfolio? It may require some consideration of your goals, time horizon, and risk tolerance.

Are Mutual Funds Right for Your Portfolio?

There’s no way to say definitively that a certain investment or investment type, like mutual funds, are “right” for any given investor. But in a general sense, mutual funds may be a good choice if you’re a new or young investor, and looking to add some out-of-the-box investments to your portfolio. Again, mutual funds are typically already diversified, to a degree, and are managed by professionals.

Can You Cash Out Anytime? Understanding Liquidity

Mutual funds are not as liquid as stocks or other investments, but they are fairly liquid. That’s to say that if you want to cash out or sell your mutual fund holdings, a prospective trade will only execute once per day — after the stock markets close at 4pm ET. Conversely, stocks can trade any time during market hours.

Mutual Funds Compared to ETFs

Mutual funds are, in many ways, similar to other types of investments, like ETFs.

Mutual Funds vs ETFs: A Comparative Analysis

Mutual funds have been around since the 18th century, but exchange-traded funds, or ETFs, are relatively new, having debuted in the early 1990s. Traditional (old-school) mutual funds are issued by the fund sponsor when you buy them and redeemed when you sell them.

They are priced once a day, after the market closes, at the value of all the underlying securities in the fund divided by the number of fund shares — again, their net asset value (NAV).

Exchange Traded Funds (ETFs) trade on stock exchanges throughout the day. You buy them from and sell them to another investor — just like a stock.

Since the assets in the fund are constantly changing value throughout the day, and the fund price is set by market supply and demand, it might trade a little higher or lower than its NAV at different points in the day, but ETFs generally track their NAV very closely. Both traditional funds and ETFs can be actively or passively managed.

ETFs have two advantages — liquidity and cost. Even though you may pay a commission for buying or selling them—just like a stock, they generally have lower expenses that more than make up for it.

Since they can be bought or sold whenever the market is open, you don’t have to wait until the end of the day to buy or sell. This liquidity can be a big advantage on days when the market is way up or way down.

Understanding Fund Classes and What They Mean for Your Investment

There are some mutual funds that offer classes of shares, or different types of shares (similar to some stocks). The different classes of shares tend to correlate to the types of fees or expenses associated with them. Investors may find Class A, Class B, and Class C shares on the market for certain funds.

Class A shares tend to charge fees up front and have lower ongoing expenses, which may be attractive to long-term investors. Class B shares may have high exit fees and expense ratios. Class C shares tend to have mid-level expense ratios and small exit fees, and are often popular with the typical investor.

Getting Started with Mutual Funds

If you think mutual fund investing is a good option for your strategy, getting started can be relatively simple.

Steps to Your First Mutual Fund Investment

The first thing to do if you’re looking to invest in mutual funds is to sit down and do some homework. As discussed, there are myriad mutual funds out there, and they’re all different. You’ll want to pay close attention to what each fund offers, the costs associated with it, and the risks, too.

If you’ve found a mutual fund that you think is a good fit for your portfolio, you’ll want to choose a brokerage or platform that will allow you to buy shares of a given fund, or otherwise have an account that you can trade with, such as a retirement account.

From there, it’s more or less about placing an order and executing the trade. And, after that, managing and rebalancing your portfolio every so often.

Working With Financial Advisors: Finding Guidance in Mutual Fund Investing

As with all investments, if you feel that mutual fund investing has thrown you for a loop or is over your head, you can and maybe should reach out to a financial professional for guidance. Advisors of various types should be able to help you figure out which funds may be a good fit, describe their fees and risks, and help you make a wise selection that will help put you on track to reaching your financial goals.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

The Takeaway

Mutual funds are companies that pool investors’ money, and then invest it in numerous types of securities on their behalf. Investors can purchase or invest in shares of mutual funds and add them to their portfolios. Mutual funds can be useful to new or beginner investors, as they offer built-in diversification, and active management.

They do have higher costs than other investments, though, which is something investors should consider. Further, there are thousands of mutual funds on the market, which may be overwhelming to some. If you’re interested in investing in mutual funds, it may be a good idea to speak with a financial professional for guidance.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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