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:
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.
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.
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 2018!
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