Who Pays for College?

Who Pays for College?

Gold tassel on a check written for college tuition

We hear it in political news, in public media, and in personal conversations: the cost of higher education can feel outrageous. And as costs continue to rise, family and students can find themselves wondering, how do we pay for that college degree? To offer some perspective, we share common avenues and sources that other college-bound families are using by diving into a few national studies provided by Sallie Mae and the College Board to explore who and how students and families pay for college. Here’s a few data points to wet your appetite:

According to the College Board, the average cost of tuition and fees for the 2018-2019 school year was as follows:

  • Four-Year Private Colleges: $35,830
  • Four-Year Out-of-State Colleges: $26,290
  • Four-Year In-State Public Colleges: $10,230

To cover these costs, American families used the following three sources of funding according to Sallie Mae’s 11th annual “How America Pays for College” report released in 2018:

  • Family Income and Savings
    • Costs covered by parents: 34%
    • Costs covered by students: 13%
  • Scholarships and Grants
    • Costs covered by scholarships: 17%
    • Costs covered by grants: 11%
  • Student Loans and Borrowing
    • Costs covered by parent borrowing: 10%
    • Costs covered by student borrowing: 14%

With these statistics in mind, let’s explore each of these sources of funding to learn more about how families can take advantage of each avenue in pursuit of their education planning needs.

Family Income and Savings

In 2018, family income and savings contributed to almost half (47%) of the $26,458 average that was spent per student on tuition3. With 34% of that amount coming from income and savings of a child’s parents, we encourage families to save for their child’s education as early as possible, even though it may feel like a less important expense as the money isn’t needed until 15 years down the road. A my529 account is a great tool that we use with our Clients to save adequately for college payments. You can find more information about our use of my529 plans in this post. While a large portion of this source pulls from the pockets of our adults, Sallie Mae points out that in 2018, students themselves contribute about 13% to college tuition through their own income savings. Read more about how we work with families to help children build financial literacy skills that can help them save for their own education.

Scholarships and Grants

Starting in high school, students are encouraged by their families and teachers to pursue as much “free money” (i.e. scholarships and grants) as they can. This is because unlike student loans, students do not have to pay back scholarships or grants. Students can apply for scholarships while still in high school, and are awarded in amounts large and small and by a variety of different sources including charities, foundations, the government, local businesses etc. Another benefit is that these funds can be directly applied to anything school related. Grants are a bit different than scholarships, some of the most popular coming from the federal government. To apply for these grants, families need to complete the FAFSA – details on which we wrote about in this space.  While not everyone will qualify for grants, it does not hurt to fill out the application to see what you qualify for. While a family’s adjusted gross income (AGI) has to be significantly low to qualify for a grant such as the Pell Grant, there are other non-need-based student loans that are acquirable.

Student Loans and Borrowing

Rounding out the third and final bucket of funds used for a student’s educational costs are student loans and other borrowing. In 2018, borrowing money to cover the costs of tuition made up 24% of the total amount paid for tuition by parents and their students3. The details of a student loan can change whether the loan is considered need-based or non-need-based, and can come in the form of subsidized or unsubsidized loans, graduate loans, Parent PLUS loans, and otherwise. Of course, all loans need to be repaid. If you find yourself approaching your student loan repayment period, we encourage you to review this piece with details about loan repayment information.

Clearly, education planning is a complex yet important facet of any financial plan for an individual desiring to support a child through their higher education journey. Whether you have already started or are ready to begin preparing for your education planning journey, we hope you will share your thoughts and concerns with us so we can work together to discuss which college funding options may be the best for you and your family, and to help you follow the most efficient education planning strategy.

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