9 Common Misconceptions About Paying for College

What are the biggest myths about paying for college? Avoiding these misconceptions can save you money and set you up for financial success.

portrait of Genevieve Carlton, Ph.D.
by Genevieve Carlton, Ph.D.

Updated February 11, 2022

Reviewed by R.J. Weiss

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9 Common Misconceptions About Paying for College


"Everyone takes out loans." "The FAFSA doesn't matter." "You can't avoid student debt." These are just a few of the common myths many people believe about paying for college.

But what many don't know is that these misconceptions can cost you money. According to EducationData.org, around $2 billion in grant money goes unclaimed each year. Not filling out the FAFSA, taking out unnecessary loans, and avoiding private colleges can all increase the cost of a college degree.

Here, we break down some of the most common misconceptions about paying for college.

Myth #1: Everyone Takes Out Loans

In 2021, the total amount of student loan debt in the U.S. hit a record high of $1.75 trillion. That staggering number might make it seem like everyone takes out loans to pay for college. But in reality, only around 30% of all undergrads have taken out federal loans to cover educational expenses as of 2021, according to EducationData.org.

Some take out loans from private organizations, while others borrow money from family. Overall about 65% of today's undergrads graduate with debt.

With careful planning, you may be able to avoid student loans completely.

Myth #2: The FAFSA Is Only for Loans

Most college students have heard of the FAFSA, or Free Application for Federal Student Aid. But did you know only 66% of students fill it out each year? As a result, college students miss out on billions of dollars in free money for college.

Many assume the FAFSA is only for students who need loans. But the truth is that every student can benefit from submitting the FAFSA.

Every year, the U.S. Department of Education distributes $120 billion in financial aid, which includes grants, scholarships, and federal work-study — all in addition to loans. However, each year, billions of dollars in student grants go unclaimed.

What's more, the FAFSA helps students qualify for state, institutional, and private financial aid. Don't make the mistake of ignoring this critical form.

Myth #3: Only Low-Income Students Get Financial Aid

Financial aid comes in several forms, including need-based and merit-based aid. Assuming that only low-income students qualify for this aid is by far one of the biggest misconceptions about paying for college.

In truth, 86% of college students use financial aid to pay for their degrees. Additionally, over 40% of students receive federal grants, which come with no repayment requirement.

That number includes many students at higher income levels. According to the National Center for Education Statistics (NCES), students who reported $48,000 or more in income received an average of over $10,000 in grants and scholarships during the 2019-20 academic year.

Many private universities also offer generous financial aid packages to students of all income levels.

Myth #4: Private Scholarships Are the Best Type of Gift Aid

Private scholarships are a great way to pay for college. Unlike loans, recipients never need to pay back these awards. However, private scholarships represent a small fraction of the gift aid — also known as free money — available for college.

When it comes to scholarships and grants, the federal government hands out nearly half the total amount, according to EducationData.org. Institutional aid accounts for another 35% of gift aid. States, meanwhile, distribute 8%, with private and employer scholarships accounting for 10% of the total gift aid available.

This doesn't mean you should ignore private scholarships — just know that they're unlikely to cover all your expenses.

Myth #5: Public Universities Are Always Cheaper

Public universities have a reputation for lower price tags. According to NCES, the average total cost of tuition, fees, and room and board at four-year public schools was $20,600 during the 2018-19 academic year. In contrast, private colleges charged a whopping $44,660.

But there's a major difference between the sticker price and what students actually pay.

In 2020-21, undergraduates at private universities received an average tuition discount of 48%, according to the National Association of College and University Business Officers. That's because private institutions typically offer more grants and scholarships than public schools do.

NCES data also indicates higher aid for students at private institutions. During the 2018-19 school year, undergrads at private, four-year nonprofit institutions received an average of $24,080 in scholarship and grant money, while those at public, four-year institutions received around $8,310.

Rather than ruling out private institutions, students should compare financial aid packages and the total cost of attendance after aid.

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Myth #6: You Can't Turn Down Loans

After filling out the FAFSA, students receive a financial aid offer from their school's financial aid office. The offer may include grants, scholarships, and loans.

But you don't have to accept all student loans offered by your school. In fact, you can turn down as many student loans as you want to.

The Federal Student Aid Office recommends accepting financial aid in the following order:

  1. Take all the free money you're offered, such as grants and scholarships.
  2. Accept earned money like work-study jobs.
  3. Consider student loans.

All loans aren't created equal, though. Borrowers should start with federal loans, which typically offer the lowest interest rates and more flexible repayment options. Once you've exhausted those options, you can look toward private student loans.

You may also decline loans or request a lower amount if you don't need the full amount. Your student aid office can walk you through the process.

If you turn down part of a loan but end up needing that money later, you may increase the amount or take out additional loans for the following school year.

Myth #7: College Savings Hurt Your Financial Aid Package

Financial aid formulas use your family's income and assets to determine whether you qualify for grants and other need-based aid. So is it better not to save for college? Absolutely not!

When calculating eligibility for need-based aid, the FAFSA determines each student's expected family contribution (EFC). That number takes into account your income and assets, among other factors like family size and number of family members currently enrolled in college.

Some families worry that college savings, including 529 accounts, will cost them financial aid. But the EFC calculation only factors in about 6% of parental assets. And that doesn't include retirement accounts or home value.

Myth #8: You Can't Negotiate a Financial Aid Package

It's a common misconception that once your school sends out its financial aid offer, you either must accept or reject it. The reality is that students can often negotiate their financial aid packages.

Here's how it works: Students who experience a change in their income or other circumstances can ask for more financial aid. For dependent students, for example, if a parent lost their job or took a pay cut, you can appeal the financial aid decision to request more aid. Other changes in income or assets may also qualify.

For schools that use the FAFSA, an unusual circumstances or special circumstances request can mean more aid, including more need-based aid.

Myth #9: You'll Graduate With a Huge Student Loan Bill

Horror stories about student loans can leave undergrads with the impression that everyone graduates with six-figure debt. The numbers, however, tell a different story.

According to EducationData.org, about 65% of today's undergraduates graduate with student loan debt. The College Board reports that students graduated with an average of $28,400 in debt in 2020. Still, many students earned their bachelor's degrees without taking out any loans.

While it might seem impossible to earn a degree without debt, many students pull off the feat every year. And they do this through a combination of choosing affordable schools, saving money for college, and researching grants and scholarships.


DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.


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