How the Work-Study Program Can Cut Student Loan Borrowing

Finding the funds to attend the college or university of your choice can be a challenge, especially when you factor in living expenses or room and board. Student loans can help you cover the cost, but it’s important to exhaust all of your other options first so that you don’t take on more debt than is absolutely necessary to attend school.

If you qualify, the federal work-study program is one way you can reduce the overall amount that you need to borrow, which can help you manage your student loan debt after you graduate and save you money in the long term.

[READ: What Is Federal Work-Study: Frequently Asked Questions.]

Postsecondary education is an investment in yourself and your future, so you should not be afraid to borrow to pay for college if that will allow you to gain the skills and knowledge needed to earn more money and grow your career. However, if you do borrow, always do your best to be an informed borrower and reduce your overall debt burden.

That’s important because student loans must be repaid with interest. The interest rate, forgiveness options and repayment schedule will vary based on the type of loan you choose, but in most cases you will pay your lender back more over time than the amount that you borrowed. In the long term, you will pay more for your education than the sticker price you see on your school’s website if you use loans to help pay for college.

Reducing your overall student loan debt burden is also important because you want to be sure the monthly payments you make are manageable in your budget when those loans go into repayment. The more loans that you borrow, especially if you borrow from different lenders, the higher your monthly payments may be.

That is why you should always explore and exhaust all financing resources that you do not have to repay or that do not have interest, such as scholarships and need-based aid, before making the choice to borrow. Your high school guidance counselor can be a great resource for finding scholarships, especially local ones that are specific to your area.

The availability of need-based aid depends on whether you qualify. Filing the Free Application for Federal Student Aid, known as the FAFSA, is the first step toward finding out your eligibility for this type of assistance.

Federal work-study is a need-based aid program through which the federal government subsidizes the paychecks of college and graduate students who work qualifying part-time jobs. These jobs are typically on campus, but more recently some schools have been approved to offer off-campus positions as well. If you qualify, you can earn money while you are in school that can help you pay for living expenses, meals or other costs associated with your education.

The total work-study award that you are eligible to receive depends on a few factors, including when you apply, your level of financial need and your school’s funding level. Students earn at least the current federal minimum wage, but may earn more depending on the type of work and the skills required for the position.

[READ: What Work-Study Looks Like During the Coronavirus Pandemic.]

Payments are typically made directly to students to apply to expenses throughout the year or to save, but in some cases you may also be able to ask that they be applied directly to your tuition bill.

Work-study can help you reduce the overall amount you need to borrow because you can earn money to pay for expenses while you are in school. Tuition and fees are only one part of what it will cost you to attend college for a year. Associated expenses include room and board, or housing expenses if you will not live on campus; textbooks, a computer and other supplies needed for classes; transportation; and qualified personal expenses such as child care.

Instead of borrowing to afford these additional expenses, enrolling in work-study will allow you to earn money throughout the school year to cover them. Depending on how many hours you work and how much money you earn, you can save thousands of dollars if you enroll in the program each year while you earn a four-year degree.

To understand the impact on your long-term budget, consider two scenarios. Let’s say you are a dependent student and tuition and other costs at your chosen college are $25,000 annually. Between savings, scholarships and grants you have $10,000, so you are able to pay your tuition when the bill is due. But you still have a $15,000 gap to fill in order to cover room and board and other expenses that you will have throughout the year.

In the first scenario, you borrow $15,000 to pay your bills. As a first-year student, you can borrow up to $5,500 in federal direct loans and the current interest rate on these loans is 2.75%. To cover the rest, your parent or guardian may borrow a federal Parent PLUS loan of $9,500 at an interest rate of 5.3%.

If you repay both loans on a standard 10-year repayment plan, the total amount you and your family would pay for your first year of college in this scenario in loans and interest would be about $15,646.

[Read: How 10 Students Found Innovative Ways to Pay for College.]

In a second scenario, you enroll in work-study and pay for some of the associated costs as you go, which allows you to borrow less. You earn $2,000, which you apply toward meals. You borrow $13,000 to close the gap: $5,500 in federal direct loans along with $7,500 in a Parent PLUS loan taken out by your parent or guardian.

In this scenario, the total amount you and your family would pay for your first year in college in loans and interest would be about $13,541, which is $2,105 less than you would pay in the first scenario even though you earned only $2,000. The savings of $2,105 from work-study may not seem like much next to the big numbers that you are paying overall, but if you repeat this scenario over four years, that’s more than $8,400 that you would save on educational costs.

To find out whether you qualify for work-study, complete and file the FAFSA as soon as possible. Your eligibility is based on the information you provide on this form, including income and assets, as well as the amount of funding that your school has available for the program. Filing early is the best way to ensure that you receive the maximum award for which you are eligible — which could include debt-reducing income through work-study.

More from U.S. News

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