How Financial Aid Can Shape Career Choice

September 23, 2021

How Financial Aid Can Shape Career Choice

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Most college students rely on financial aid and scholarships to finance their education. Financial aid options include loans, work-study programs, grants, and scholarships. Grants and scholarships do not require repayment, so prospective students should consider these opportunities first. Degree-seekers can receive financial aid from schools, employers, and state and federal government programs. Learners can also apply for scholarships from private foundations and professional organizations.

Learners studying in-demand fields may qualify for special financial aid opportunities based on their major. This page explores how financial aid can impact career prospects and vice versa. The following sections cover income-driven repayment, which scales monthly payments based on the payee's income. This page also outlines financial aid and careers for individuals pursuing interests in growing fields.

Student Debt and Career Choices

According to 2009 studies by Duke University and Boston College, the burden of student debt and career choices are often related. A 2010 thesis by Daniel T. Kenny indicates that 200,000 students annually avoid college for financial reasons. Individuals with student loan debt often have trouble paying high monthly loan payments. Many graduates benefit from income-driven repayment plans, which lower monthly payment amounts based on the borrower's income and family size.

The Federal Student Aid office provides four income-driven repayment plans. The Pay As You Earn Repayment Plan (PAYE) charges about 10% of the payee's discretionary income. PAYE enrollees never pay more than they would under the 10-year Standard Repayment Plan. The Revised Pay As You Earn Repayment Plan also sets the payment at about 10% of the payee's discretionary income. But the amount may exceed the 10-year standard payment amount.

For new borrowers on or after July 1, 2014, the Income-Based Repayment Plan (IBR) is the same as the PAYE plan. All other borrowers under the IBR Plan pay 15% of their discretionary income amount. Lastly, payments under the Income-Contingent Repayment Plan equal either 20% of the payee's discretionary income or the amount they would pay monthly at an income-adjusted fixed rate over 12 years.

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What Are Income-Share Agreements?

An alternative to student loans, income-share agreements (ISAs) provide college funding in exchange for a percentage of the recipient's future salary. Payments begin when the graduate secures a job with a satisfactory salary threshold. Since the graduate's income determines their payment amount, ISA providers collect their percentage after the graduate finds gainful employment.

Students typically enter into income-share agreements with their school. Income-share programs appear most commonly at private vocational schools. Some lenders offer ISA contracts to students and non-students. Leading ISA lenders include Align, Blair, and Lumni. Additional options include Stride and Defynance.

How Do Income-Share Agreements Work?

Interested students should consult their prospective school's financial aid office to determine ISA availability. If their school does not offer income-share agreements, eligible learners can explore ISAs from lenders such as Blair, Align, and Stride.

ISA contract terms and conditions vary by school and lender. Depending on the loan amount and the contract terms, enrollees often pay 10-20% of their gross income for a few years. ISAs may only collect the income share percentage when the student reaches a minimum income threshold. Most ISAs specify a maximum amount that the company may collect per year.

To qualify for ISAs, learners may need to meet academic and/or need-based requirements. Some institutions only grant ISAs to learners pursuing high-earning STEM majors. Age and citizenship requirements may also apply.

Who Should Consider an Income-Share Agreement?

ISAs feature several benefits when compared with traditional student loans. By stipulating an income threshold, ISAs offer some protection for enrollees who do not immediately find lucrative employment. If the ISA participant loses their job, the payment requirement is typically suspended.

ISAs do have potential downsides. Unlike loan recipients, ISA participants cannot pay down their commitment faster than agreed upon. Graduates who land high-paying jobs may pay more overall than they would for a student loan.

However, ISAs can benefit students who have reached federal borrowing limits or who do not anticipate securing a high-paying position after graduation. Learners without traditional financial aid access or who have religious objections to paying interest may also choose ISAs.

Financial Aid Based on Career Path

Some jobs only pay the bills while other careers align with individuals' passions. Many careers require at least a bachelor's degree, which can be expensive. College students should consider how their choice of major may influence prospects for financial aid and careers.

Some learners choose career paths with many scholarship and grant opportunities. Pursuing an in-demand career in a growing industry can improve financial aid and job prospects. According to Debt.org, in-demand career fields include teaching, nursing, and information technology programming. Debt.org also notes that many colleges and universities seek engineering and accounting majors.

Students can begin planning their careers in high school to make smart college decisions. High school students can speak with a guidance counselor to identify their aptitudes, interests, and goals. Guidance counselors can recommend majors that may align with students' career aspirations.

Many websites, including the Federal Student Aid career search page, offer helpful career overviews and guides. Students should consider schools offering relevant programs. Learners can then search for institutional scholarships.

Federal Funding for Careers

Learners can apply for scholarships reserved for students pursuing certain majors. Federal funding for careers serves students in in-demand fields such as nursing, teaching, and cybersecurity. Students in these areas often qualify for attractive financial aid packages. The following list highlights career-specific grants, scholarships, and programs for three in-demand fields. Additional high-demand fields include engineering, special education, and foreign languages.

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