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

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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 2020!
LenderVariable APREligibility 
1.09% – 11.98%1Undergraduate, Graduate, and Parents

Visit College Ave

1.25% – 11.10%*,2Undergraduate and Graduate

Visit SallieMae

1.24% – 11.99%3Undergraduate and Graduate

Visit Discover

1.24% – 11.44%4Undergraduate, Graduate, and Parents

Visit Earnest

1.78% – 11.89%5Undergraduate and Graduate

Visit SoFi

2.69% – 12.98%6Undergraduate and Graduate

Visit Ascent

3.52% – 9.50%7Undergraduate and Graduate

Visit CommonBond

* 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 either Firstrust 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. 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.
  2. 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. This informational repayment example uses typical loan terms for a first year graduate student 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 7.10% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $141.66 while in the repayment period, for a total amount of payments of $16,699.21. 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 11/2/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.


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

3 Important Disclosures for Discover.

Discover Disclosures

  1. Aggregate loan limits apply.
  2. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  3. Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and Auto Debit Reward. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including undergraduate and graduate loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Learn more about Discover Student Loans interest rates.
  4. Lowest APRs shown for the Discover Private Consolidation Loan are available for the most creditworthy applicants and include a 0.25% interest rate reduction while enrolled in automatic payments.The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Visit Discover.com/student-loans/consolidation for more information, including up-to-date interest rates and APRs.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

4 Important Disclosures for Earnest.

Earnest Disclosures

  1. Rates include 0.25% Auto Pay Discount
     
  2. Explanation of Rates “With Autopay” (APD)
    Rates shown include 0.25% APR discount when client agrees to make monthly principal and interest payments by automatic electronic payment. Use of autopay is not required to receive an Earnest loan.

    Available Terms
    For Cosigned loans – 5, 7, 10, 12, 15 years. 
    Primary Only – 10, 12, 15 years

    In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA).


5 Important Disclosures for SoFi.

sofiDisclosures

UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.88% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.78% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.95% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.88% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 11/04/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).


6 Important Disclosures for Ascent.

Ascent Disclosures

Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.

  1. Competitive variable rates calculated monthly at the time of loan approval based on a margin plus the 1-Month London Interbank Offered Rate (LIBOR) rounded to the nearest 1/100th of a percent. The current LIBOR is 0.152%, which may adjust monthly. Your interest rate may increase or decrease, based on LIBOR monthly changes. Rates are effective as of 11/01/2020 and reflect an Automatic Payment Discount. Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month.(See Automatic Payment Discount Terms & Conditions.)
    1. Undergraduate Loans: Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 2.69% and 12.98%.  Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 3.58% and 14.50%. Rates reflect an Automatic Payment Discount of 0.25% on the lowest offered rate and a 2.00% discount on the highest offered rate. The following table shows a 48 month in-school period plus 9 months of grace prior to a full repayment term of either: 60-months (lowest fixed/variable rate), 144-months (highest fixed rate) or 180-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options.((See Undergraduate Loan repayment examples.)
    2. Graduate Loans (Graduate, MBA & Law): Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 3.65% and 12.40%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 4.62% and 13.54%. Rates reflect an Automatic Payment Discount of 0.25%. The following table shows a 36 month in-school period plus 9 months of grace prior to a full repayment term of either: 84-months (lowest fixed/variable rate), 144-months (highest fixed rate), or 180-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options. (See Graduate Loan repayment examples.)
    3. Medical: Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 3.65% and 12.40%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 4.62% and 13.54%. Rates reflect an Automatic Payment Discount of 0.25%. The following table shows a 48 month in-school period plus 36 months of grace prior to a full repayment term of either: 84-months (lowest fixed/variable rate), 144-months (highest fixed rate), or 240-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options. (See Medical Loan repayment examples.)
  2. Payments may be deferred. Subject to lender discretion, forbearance and/or deferment options may be available for borrowers who are encountering financial distress.
  3. Making interest only or partial interest payments while in school will not reduce the principal balance of the loan. There are three (3) flexible in-school repayment options that include fully deferred, interest only and $25 minimum repayment. (See Undergraduate Loan repayment examples.)
  4. Flexible repayment plans may be offered up to a fifteen (15) year repayment term for a variable rate loan and ten (10) year repayment term for a fixed rate loan. Students must be enrolled at least half-time at an eligible school. Minimum loan amount is $2,000.
  5. Interest rate reduction of either 0.25% (for Credit-Based Loans) or 2.00% (for Undergraduate Future Income-Based Loans) applies only when the borrower and/or cosigner sign up for automatic payments and the payment amount is successfully deducted from the designated bank account each month. The amount of the discount is dependent upon the loan product and credit history of the borrower at the time of application. Interest rate reduction(s) will not apply during periods when no payment is due, including periods of in-school, deferment, grace or forbearance, unless a regular payment amount has been arranged with the servicer. If you have two (2) consecutive returned payments for Nonsufficient Funds, we may cancel your automatic debit enrollment and you will lose the interest rate reduction. You will then need to re-qualify and re-enroll in automatic debit payments to receive the interest rate reduction.(See Automatic Payment Discount Terms & Conditions.)
  6. All applicants (individual and cosigner) are required to complete a brief online financial literacy course as part of the application process to be eligible for funding.
  7. Eligibility, loan amount and other loan terms are dependent on several factors, which may include: loan product, other financial aid, creditworthiness, school, program, graduation date, major, cost of attendance and other factors. Aggregate loan limits may apply. The cost of attendance is determined and certified by the educational institution.
  8. The legal age for entering into contracts is eighteen (18) years of age in every state except Alabama where it is nineteen (19) years old, Nebraska where it is nineteen (19) years old (only for wards of the state), and Mississippi and Puerto Rico where it is twenty-one (21) years old.
  9. 1% Cash Back Graduation Reward subject to terms and conditions. Click here for details. In order to be eligible for the 1% Cash Back Graduation Reward, borrower must meet the following criteria after graduation:
    • The student borrower has graduated from the degree program that the loan was used to fund.
    • The student borrower may change majors and/or transfer to a different school, but must obtain the same level of degree (e.g. – undergraduate or graduate)
    • The graduation date is more than 90 days and less than five (5) years after the date of the loan’s first disbursement.
    • Any loan that the student has borrowed under the Ascent loan is not more than 30-days delinquent or in a default status as of the graduation date and until any Graduation Reward is paid.
  10. Students can apply to release their cosigner and continue with the loan in only their name after making the first 24 consecutive regularly scheduled full principal and interest payments on-time and meeting the other eligibility criteria to qualify for the loan without a cosigner.

* Application times vary depending on the applicant’s ability to supply the necessary information for submission.


7 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.17% effective Sep 1, 2020 and may increase after consummation.