Sallie Mae and Gallup recently released a report entitled How America Pays For College. The study gathered data from families and college-bound students related to their plans for paying for higher education for their children. Not surprisingly, parents provided the majority of financial support for their children

According to the study, parents provide about one-third of the funds needed for their children to attend college from their savings or directly from their income. Parents also provided additional cash through borrowing, however, few parents chose to borrow from their home equity to cover the cost of college. Those who did, however, borrowed on average more than $10,000. The combined parent contribution amounted to nearly half of the cost of attending college.

Student borrowing comprised slightly less than one-quarter of the respondents’ college cash. Grants and scholarships were used to pay for about 15 percent of the total cost of attendance. Student income from work covered about 10 percent of the cost and the remaining costs were covered by friends and relatives.

Overall, slightly less than half of all families interviewed borrowed money to pay for a child’s higher education. Twenty-eight percent of families reported borrowing Federal funds, and borrowed on average slightly less than $5,100.

One of the study’s more interesting findings was that nearly half of all parents and more than one-third of college students did not eliminate institutions based on their cost, even though the cost of attending a particular institution is the major determinant in how much money a family needs to borrow.  Additionally, seven of ten parents and students said that the student’s post-graduation income potential did not impact their decision to borrow funds, although the post-graduation income determines how well a student can repay his or her debts.

Borrowing funds for higher education is widely accepted. Seventy-five percent of parents and eighty-seven percent of students say that they would prefer to borrow to attend college rather than not attend college at all.
Most families were worried about the economy’s impact on their ability to pay for higher education. Six of ten families were concerned about the cost of tuition rising beyond their ability to pay, while just over half of respondents thought rising interest rates on private student loans may be problematic.