Sallie Mae and Gallup teamed up to determine how families really pay for college and the results were surprising – at least to me. Interviewing 1,404 respondents by telephone during the month of May, the study found that the majority of student’s expenses are absorbed by their parents. No surprise there.
Average percentage of total cost of attendance paid for each source
- 36 percent of expenses were paid by parental savings or income
- 25 percent of expenses were paid by grants or scholarships
- 14 percent of expenses were paid by student borrowing
- 10 percent of expenses were paid out of student savings or income
- 9 percent of expenses were paid by parental borrowing
- 6 percent of expenses were paid by friends or relatives
Remember, this is how the average family paid the total bill. Those number change drastically depending on parental income. As parental income decreased, the amount of grants and scholarships rose. If you’re like the average American, you’ll use a similar combination of these options.
That means that 71 percent of college expenses were paid without borrowing and that’s great, but 5 percent of students paid their college expenses with a credit card (ugh). Buried down in the report was an interesting little nugget: Families who BORROWED, spent more money than those who didn’t, exceeding the non-borrowers by 33 percent!
This finding would seem to support the oft cited axiom that borrowed money is more easily spent than non-borrowed money.
As my oldest daughter prepares to enter her freshman year, we’ve been fortunate that she was a good student and has the majority of it paid for by scholarships, two of which totaled almost $13,000 per year. Of course she has to maintain those but she’s not one to give up … thankfully. The balance of her college education will be paid for by the 529 plan her mother and I have for her as well as a separate savings account we’ve set up. It was a GREAT feeling checking the REJECT box on her financial aid papers for student loans.
For the record, I personally paid off $50,000 in student loans for two runs at undergraduate school and one completed MBA. I didn’t want her saddled with that debt so her mother and I made sure:
- Our daughter was tutored. We wanted her as prepared for college and it’s admission tests as possible.
- We set up a 529 plan. You can set these up at Scottrade very easily and then make regular contributions.
- We had a savings account that we also contributed to. Saving money HAS to become a HABIT.
What are your plans to pay for college? Will you borrow? Is it worth it? Have you made plans to finish your education?