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 2020!
|* 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.
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)All rates shown include the auto-pay 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.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 11/4/2019. Variable interest rates may increase after consummation.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).
5 Important Disclosures for Citizens.
Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2019, the one-month LIBOR rate is 1.70%. Variable interest rates range from 2.80% – 11.06% (2.80% – 10.91% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school 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. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
Please Note: International Students are not eligible for the multi-year approval feature.
|2.84% – 10.97%1||Undergraduate, Graduate, and Parents|
|2.87% – 10.75%*,2||Undergraduate and Graduate|
|2.80% – 11.37%3||Undergraduate and Graduate|
|3.52% – 9.50%4||Undergraduate and Graduate|
|2.80% – 11.06%5||Undergraduate and Graduate|