The 5 Biggest Ways Families are Paying for College in 2020
Families reported shelling out an average of $30,017 to pay for college last year according to Sallie Mae’s 2020 “How America Pays for College” report. Since most undergraduates go to college for 4 years, this means that most families are paying over 100,000 now to pay for the entire degree. Although these costs are generally lower for working families, what is clear is that families are using five major funding sources to pay for college.
Gift Aid is Everyone Favorite Way to Pay for College
Everyone loves to get free money. So it’s no wonder that no matter what income category you are in, families are interested in getting as much gift aid in the form of scholarships and grants. The College Board estimated that over $41 million of gift aid is awarded to undergraduate and graduate students in 2018-19. To break that down to a family, Sallie Mae’s recent study calculated that seven in ten families utilize need-based and merit-based gift aid.
Student Loans are Reality for Many Families
Families want to limit borrowing to pay for college; however, most need to do so to fill the gap. Although the average undergraduate borrows 5 percent less annually than they did ten years ago, the reality is that students are still borrowing to meet for college costs. For some students, they stick to the Federal Direct Student Loan program for their borrowing needs which restricts the amount they can borrow from $5,500 to $7,500 unless they are an independent student. For others, they use Private Student Loans that most often require a co-signer in order to borrow.
Students are not the only ones borrowing to pay for college. Their parents are borrowing as well. In fact, 8% of parents borrow in their own name to meet 2019-20 college costs according to Sallie Mae. The most frequent loan options are Federal Parent PLUS Loan, Private Parent Loans, Home equity loan, and Retirement account loan. Nonetheless, some resort to borrowing from credit cards to pay for college.
College Savings are a Blessing
Many students and parents use their savings to pay for college. Now, 14 million Americans have a 529 college savings account. With an average net price for private college costing $114,000, an average 529 plan balance of about $26,000 doesn’t pay the lion’s share of the costs but it does help. Not everyone just uses 520 plans, others use Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) accounts, Coverdell Education Savings Accounts (ESAs) , mutual funds, retirements, or general savings accounts.
Student Earnings Help Defray College Costs
More undergraduate students work while attending college than you may think. In fact, 70% of full-time undergraduate students work according to the Georgetown University Center on Education and the Workforce. Now some of these jobs may be as little as 2 hours a week while others are working full-time and going to school full-time. Some of these jobs are a part of a work-study program. According to Sallie Mae’s research, average work-study award was $1,847 in 2019-20.
Some families take the approach that student earnings pay for pocket money - coffee with friends, the latest video game or music, or ticket to the football game. Others families use to pay for indirect costs - like books and supplies and shampoo and other essentials. While still others assume all college costs will be covered by the student so it’s up to the student to balance the ways to pay for college.
Worried about the toll of working on the student? Consider balancing the long terms benefits. Some student earnings have shown to be good. A report out of Rutgers University found that students who work while enrolled earn higher salaries after graduation.
However, working too much can take to grades and time to completion. If a student comes from a low-come family, the Georgetown University study indicated that those working 15 or more hours a week had a C average or lower GPA and were less likely to complete a degree.
Parent Earnings are a Go-to Resource
In 2019-20, 83% of parents paid a portion of the cost of their kid’s college costs out of their own pocket to the tune of $10,127 compared to 66% of families paying an average of $8,982 in 2018–19 according to Sallie Mae. For many, their water bill, groceries, and even gym membership reduces when their kid is not living in the household so it’s an easy transition to divert these funds to paying for college costs. Others try to stretch their budgets so that they (or their kid) does not have to borrow as much (or at all).
Pro Tip: Find the right balance of using multiple ways to pay for college. Once you understand your college net price after all that gift aid comes into play (even if that is 10 years from now), see how far your and your kid’s earnings and savings will stretch with Quatromoney’s College Financing Planner. You’ll be able to create your own personalized college financial plan and find the best financing options for your family.
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.