Whether you’re a student getting ready to apply to college, or a parent trying to help your child prepare, you’re probably asking yourself 1 big question: how will you be paying for college? College costs have been steadily rising over the past 20 years, meaning that some families might need to get creative or plan well ahead to be prepared for the expense.
How American Families Pay For College
Once again this year, Sallie Mae and Ipsos got together to look at how real families like you are tackling that issue, what resources they used, and how they felt about it. This was the 10th national study of its kind.
Here are the 3 highlights of what we learned from it about how the average American family chose to pay for college, from the Sallie Mae Annual Report: How America Pays for College.
1. Who Is Actually Paying For College?
While each family’s situation is unique—with diverging factors ranging from family size, to expenses, to income, to preferences and customs—on average, students and their parents share equal responsibility for paying for college. At least, they split the responsibility when it comes to covering the initial costs of attendance. When it comes to the portion that students typically covered, this is how it broke down.
- At about 35% of the total cost of attendance, the majority tended to be covered by scholarships and grants. This category includes institutional aid as well as state and federal grants.
(A note on those scholarships: The majority of families used scholarships to cover at least part of tuition. And half of all scholarships used came from the college itself.) - A further 20% of the cost of attendance was typically covered by loans taken out by the student, including both private student loans and federal subsidized and unsubsidized loans.
- 11% of the cost on the student’s end was covered by the student’s personal income and savings.
On the parents’ side of things, about 23% was typically paid for using parental income and savings. An additional 8% came from parent borrowing.
After the student graduates, it’s a little bit of a different story. After graduation, a majority of students expect to hold sole responsibility for paying back student debt. In fact, 84% of students plan to repay their loans without help from their parents. 21% also plan to pay back their parents for the money they contributed.
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2. Where Did the Money Come From?
Overall, the average American family reportedly paid about $23,757 for tuition in the 2016-17 school year. And students themselves contributed a larger portion of that since 2011, while the parent contributions actually declined. It has been speculated the decline in parent contribution could have been influenced by an overall decline in parent income.
But with more and more students paying for college themselves (or to a greater degree), and parents in somewhat tighter financial situations, how did those families prepare—or not prepare—for that level of expense? Families across the country typically blended an array of strategies, explored below.
Planning Ahead
We all know we should plan ahead for large expenses in life. Unfortunately, lots of us don’t end up actually doing it. Approximately nine out of ten families knew from the beginning that their son or daughter would inevitably attend college. By contrast, fewer than four in ten families actually created a plan in advance to cover that expense and followed through with it.
When families did prepare in advance for college costs, many of them opted to use a 529 College Savings Plan. Approximately 13% of families used a 529 to pay at least part of college tuition. Families who used one saved about $10,031 on average. Other strategies include using personal savings and investments.
Scholarships & Grants
Scholarships and grants are an attractive option for many families for one reason in particular: You don’t have to pay them back. Whether the funds are need-based or merit-based, scholarship and grants are one of the biggest factors in making college education affordable for many families. So it’s no wonder that so many students and families try to get them!
For the 2016-17 school year, seven in ten families said that they or their child looked or applied for scholarship opportunities. A little less than half reported that they received scholarships and were using them to pay tuition and other expenses. The average amount of scholarship money going toward college was $8,390, which was an increase from 2015-16. Those scholarships came from a variety of sources:
- 87% of people using scholarships received some from the college itself
- 75% of people received scholarships or grants from private or community organizations
- 65% received scholarships or grants from their state or local government
Student Loans
Student loans were another major component in many families’ college funding strategies in the 2016-17 year. In fact, 36% of families reported using student loans to cover at least part of the cost of tuition. In this context, we’re referring specifically to funding borrowed by the students themselves, as opposed to loans taken out primarily by their parents.
86% of families filled out the Free Application for Federal Student Aid (FAFSA) this year, which could reflect either a growing awareness of the FAFSA in general, or an increased need for federal aid by families. As a result, 33% of families ultimately used federal student loans, either subsidized or unsubsidized. A further 10% of families reported using private student loans to cover some of the cost.
Part-Time Jobs
Even if students have scholarships, grants, and loans on the table, it might not cover everything. Plenty of students opt to cover the difference by getting part-time jobs! Students might work through high school to save money ahead of time, work through college to cover some additional expenses, or both. For 2016-17, students and their families reported the following data about their employment, spending, and saving habits.
- 76% of students said that they worked part-time to help pay for college and its associated costs.
- 55% of students kept those jobs year-round, whereas the remainder either worked exclusively on breaks, or only during the school year.
- 50% of working students said that they increased their hours to help save for or pay for college. (Students in the Midwest were most likely to do this)
Parents Paying for College Even if students themselves adopted more of the responsibility this year, parents still covered their fair share. With the overall decline in parent income, families used a number of strategies to help their children afford the cost of a college education. In fact, many families use a combination of strategies to help ease the burden of tuition expenses. Here’s a breakdown of how different families chose to approach paying for college.
- 46% of families said that they used the parent or parents’ current income to help pay tuition. The average contribution from parent income was $7,612.
- 13% of families said they used a College Savings Plan or 529. The average contribution from a 529 was $10,031.
- 8% of families said they used another form of savings, such as investments. The average amount contributed from these sources was $6,901,
- 5% of families said they dipped into their retirement savings to help. The average amount used was $4,321.
3. How Do They Feel About It?
Paying for college is a pretty complex topic. With a diverse set of students and families throughout the United States, and a range of strategies to cover that cost, it follows that there are also a lot of different opinions about it. While each family and community might have its own perspective, there are some trends we can identify. This is particularly the case with respect to borrowing and student debt. Here are a few examples of how families like you feel about student loans and college costs in general.
- 86% of borrowers say they would rather borrow than not attend college.
- 63% of undergraduate borrowers plan to attend grad school as well.
- 43% of borrowers say that attending college is “the American dream.”
- 55% of families believe that paying more for college means that you’ll get a better education
- 29% of borrowers feel that having student loan debt is acceptable.
Paying for College in Your Family Sallie Mae and eStudentLoan encourages students and families to borrow responsibly by starting with savings, grants, scholarships, and federal student loans to pay for college. Then, fill any remaining financial aid needs with a responsible private education loan. Learn more about the 1-2-3 approach and about student loan options from Sallie Mae.