Research of the Week: How America Pays for College
6 out of 10 families avoid borrowing to cover ongoing education costs.
Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…
The interesting study
Sallie Mae® worked with the global research experts at Ipsos to release a snapshot of how the average American family is paying for college in 2015. While most studies currently focus on the aftermath of education costs in the form of student loan debt, this overview assesses how families are meeting the challenge of high education costs head-on.
The big result
Parents today seem to get exactly how much of a burden student loan debt is for their adult children as they try to gain their financial footing in the world. As a result, parents are stepping up to be the number one source of funding for education in their children’s lives and 6 out of 10 families are finding ways to afford college without borrowing.
The fascinating details
You might think that parents standing up as the biggest source of funding for their children’s education wouldn’t really be all that big of a story, but in reality it is. This is the first time since 2010 that parents took the lead – for the past five years the leading source of funding was from scholarships and grants.
- 32% of funding comes from parent income and savings
- 30% comes from scholarships
- 16% comes from student borrowing
- 11% comes from student income
- 6% comes from parent borrowing
- 5% comes from relatives and friends
So while total college expenses have risen to their highest point since 2010 at $24,164 this year, so has parental support. American families have pulled together to contribute $10,365, on average, to reduce the burden of that big expense.
The increase in parent involvement in education costs may be due at least in part to the fear parents have over their children’s futures:
- 13% worry their kids won’t find a job after graduation
- 17% fear income will decline due to job loss
- 19% have concerns student loan interest rates will continue to increase
Even for the 4 in 10 families who rely on borrowing to cover at least some education costs, Sallie Mae® is happy to report they’re being responsible when it comes to borrowing:
- 89% are going through FAFSA
- 53% are recouping some of that expense through education tax credits
- 35% are making payments on those loans BEFORE graduation when the payment schedule actually starts
The students themselves who are borrowing are also taking preemptive actions to avoid the challenges they see others already facing. As a result, 73% of student borrowers are working during school and 68% are taking steps to budget and reduce personal spending.
What you can do
As a parent, you need to plan to be as proactive as possible at helping your children prepare to afford the high cost of a college education. The more you can cover those costs with income and savings, the less you burden your children – and you if you take out PLUS loans to help them pay for school – with debt that can be difficult to manage.
This year’s average parental contribution of $10,635 is definitely evidence that most families are heading in the right direction when it comes to college savings, but the trend needs to continue. After all, that amount only covers roughly 42% of the total costs. That means children are left to fight for scholarship money, and while there are plenty of viable scholarships available it can be a lot of work to hunt down the right ones and be awarded the money over all other candidates.
If you haven’t done so already, open a 529 College Savings Plan or Coverdell Education IRA and start contributing to give your family the best heads start to overcoming the education cost burden. Additionally, if you’re starting late and don’t think you’ll have enough saved, start taking time now for you and your children to familiarize yourselves with FAFSA and the application process so you’re not overwhelmed as their transition to college approaches. You can find more information to help you prepare in the Affording College section of this website.
For young adults, take a lesson from older Millennials that you need to be as prepared as possible for achieving financial stability quickly after you graduate college. This means making a budget now that can evolve with you as you grow and gain your financial independence.