The Surprising Truth About How the Average American Family Pays for College

 August 4, 2017
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The average American spent $23,757 on college in 2017.

People paid the most in the Northeast ($35,431) and the least in the West ($19,181). Although those numbers are interesting, they’re not the most surprising part of Sallie Mae’s annual How America Pays for College study.

They’re not the most important, either. Let’s dive into the results of study, as well as a few lessons you can use when figuring out how to pay for college.

First, the results

Curious about how Americans pay for college?

Sallie Mae was too. So it teamed up with research firm Ipsos to poll 800 parents of undergraduate students aged 18 to 24 and 800 undergraduate students aged 18 to 24.

Here’s a general overview of their findings:

Image credit: Sallie Mae and Ipsos

It’s nice to see that a good chunk of change is covered by scholarships and grants. However, it’s also apparent that students and their parents have to rely on personal savings and student loans to cover the gap.

What’s great about the study isn’t just seeing how people pay for college, though — it’s using those insights to determine better ways to pay for college.

4 important takeaways from Sallie Mae’s study

Using the data from the How America Pays for College study, here are a few lessons you can take away to help you better prepare for the cost of college.

1. Make a plan

One of the most shocking pieces of information from the study is nearly 90 percent of families knew their children would attend college — but less than 40 percent created a plan to pay for it.

It’s not breaking news that college is expensive in the U.S. So whether you’re a teenager who’s fast approaching your college years or a new parent who’s looking toward the future, start planning for college now.

Of the families surveyed, only 13 percent used a 529 college savings plan for their child. That’s a mistake; since you won’t pay taxes on any interest you earn, a 529 plan is an excellent way to save for your child’s education.

2. Choose affordable alternatives

Some good news from the study is 69 percent of families eliminated colleges from their list because of how expensive they were, and 73 percent chose an in-state school to reduce cost.

Taking the cost of college into account before you or your child falls in love with a school is a smart move for both your financial futures — because attending a fancy school doesn’t necessarily mean a better education, but it might mean you’ll take out more student loans.

Case in point: 36 percent of students from families who borrowed attended four-year private colleges versus only 11 percent of non-borrowing families.

And as you can see from the chart below, families who borrowed spent nearly twice as much as families who didn’t. Most of their costs were similar. The difference came from student loans.

Image credit: Sallie Mae and Ipsos

3. Understand your loans

When it comes to student loans, it’s essential to know what you’re getting yourself into.

The survey asked students to estimate their future monthly payments. As evidenced in the chart below, their answers varied widely.

Image credit: Sallie Mae and Ipsos

So, before you take out loans, calculate how much your payments will be when you graduate.

Let’s take the typical American family as an example.

Of those who borrowed, the average amount of student loans was $9,698 per year; over four years, that’s $38,792. And let’s say the loans were Federal Direct Loans taken out at the current interest rate of 3.76%.

According to our student loan payment calculator, monthly payments upon graduation would be $388 per month.

If that doesn’t sound appealing, take steps now to reduce your college tuition bill: attend community college first, choose a school based on cost and ROI, or consider these innovative ways to reduce college expenses.

4. Seek scholarships

If you want to reduce the amount of money you’ll have to borrow, follow the lead of the students surveyed and seek scholarships.

For them, scholarships and grants covered 35 percent of their college costs — the largest percentage since the survey started a decade ago.

Nearly half of families received scholarships, and of those families:

  • 87 percent received awards from the school.
  • 75 percent received awards from private sponsors or community groups.
  • 65 percent received awards from state-based programs.

Clearly, scholarships are becoming an increasingly important piece of the puzzle when it comes to paying for college.

Although you can learn from the average American, you don’t have to be like them. You can forge your own path toward higher education — one filled with 529 plans, scholarships, and financial decisions you won’t regret.

Need a student loan?

Here are our top student loan lenders of 2022!
LenderVariable APREligibility 
2.49% – 13.85%1Undergraduate
Graduate

Visit College Ave

2.70% – 11.79%2Undergraduate
Graduate

Visit Earnest

3.37% – 13.72%3Undergraduate
Graduate

Visit SallieMae

0.00% – 23.00%4Undergraduate
Graduate

Visit Edly

3.25% – 9.69%6Undergraduate
Graduate

VISIT CITIZENS

N/A6Undergraduate
Graduate

Visit FundingU

* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

  1. As certified by your school and less any other financial aid you might receive. Minimum $1,000.
     
  2. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
     
  3. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 9/15/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.


2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.47% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.95% APR to 12.04% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.


3 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

4 Important Disclosures for Edly.

Edly Disclosures

1. Loan Example:

  • Loans from $5,000 – $20,000
  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
    • Payments deferred for the first 12 months during final year of education.
    • After which, $270 Monthly payment for 12 months.
    • Then $379 Monthly payment for 44 months.
    • Followed by one final payment of $137 for a total of $20,610 paid over the life of the loan.

About this example

The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.

2. Edly Student IBR Loans are unsecured personal student loans issued by FinWise Bank, a Utah chartered commercial bank, member FDIC. All loans are subject to eligibility criteria and review of creditworthiness and history. Terms and conditions apply.


5 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of September 1, 2022, the 30-day average SOFR index is 2.23%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
  • Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
  • Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.

     

    Undergraduate Rate Disclosure: Variable interest rates range from 3.25%-10.35% (3.25% – 9.69% APR). Fixed interest rates range from 4.24% – 10.59% (4.24% – 9.93% APR). 

    Graduate Rate Disclosure: Variable interest rates range from 3.75%-9.90% (3.75% – 9.68% APR). Fixed interest rates range from  5.22% – 10.14% (5.22% – 9.91% APR). 

    Business/Law Rate Disclosure: Variable interest rates range from 3.75%-9.35% (3.75% – 9.16% APR). Fixed interest rates range from 5.20% – 9.59% (5.20% – 9.39% APR).

    Medical/Dental Rate Disclosure: Variable interest rates range from 3.75%-9.02% (3.75% -8.98% APR). Fixed interest rates range from 5.18% – 9.26% (5.18% – 9.22% APR). 

    Parent Loan Rate Disclosure: Variable interest rates range from 3.25%-9.21% (3.25% – 9.21% APR). Fixed interest rates range from 3.96%-9.50% (3.96%-9.50% APR).

    Bar Study Rate Disclosure: Variable interest rates range from 6.58%-11.72% (6.58% – 11.62% APR). Fixed interest rates range from 7.39% – 12.94% (7.40% – 12.82% APR). 

    Medical Residency Rate Disclosure: Variable interest rates range from 5.67%-9.17% (5.67% – 8.76% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.08% APR).


6 Important Disclosures for Funding U.

Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.