How Americans pay for college: A lot of borrowing
Credit cards are rarely used, and mostly out of desperation
By Daniel P. Ray | Published: August 20, 2008
A new study shows that borrowing has become the largest single source of money to pay for college, outstripping grants, scholarships, savings and gifts.
Students themselves report borrowing 23 percent of the total cost, while parents borrow another 16 percent, according to the Sallie Mae/Gallup "How America Pays for College" poll, released August 20, 2008. Pollsters asked 684 college students and 720 parents of college students how much they pay for college, and where the money comes from.
Sallie Mae is a leading college lender; Gallup a well-known polling organization. Sallie Mae officials said they commissioned the poll to get a benchmark on college costs and to encourage financial literacy among both students and parents.
"This cost has become a significant, significant life cost," said Sallie Mae Senior Vice President Tom Joyce during a conference call with reporters announcing the poll results. "It's going to be one of the major purchases across a lifetime. The old model of how to plan for this probably no longer applies. ... It's an exercise where we need to get families away from a semester-by-semester fire drill on how they're going to pay" and plan out college financing on a long-term basis.
Those surveyed say they pay a total average of $14,628 for college. Both parents and students found great value in a college education, and were overwhelmingly willing to stretch financially to pay for it.
However, there were some red flags to the survey, in which the current credit crunch could affect how people pay for college, and whether they will be able to afford it at all. For example, 58 percent of families end up ruling out a college based on its cost.
Borrowing from home equity or from credit cards to pay for college was rare, according to the poll, but for those who use those means, they were heavily relied upon. With home values falling and credit card standards tightening, both of those sources of money are harder to come by. Parents and students, especially those in households earning less than $30,000 a year, reported high levels of anxiety over being able to pay for college.
Credit cards form a relatively small slice of borrowing for college. Of those who borrow, 19 percent of parents and 8 percent of students put part of their college costs on a credit card. Parents who reported borrowing on a credit card said they borrowed an average of $5,822. Of students who said they used a credit card to pay for college, the average amount was $2,542. The study may understate the amount of credit card use for college, because people were allowed to define for themselves whether they consider everyday usage of credit cards a "paying for college" expense.
Pollsters also asked why people paid for college costs with credit cards. "You might think it's a rewards or airline miles thing," but the survey respondents said differently, Sallie Mae's Joyce said. Among those who did report using a credit card to pay for college, "their primary reason was an emergency or cash flow problems." Of those who paid for college with credit cards, 43 percent of parents and 49 percent of students said the reason was "Had no money/emergency."
"Any dollar put on a credit card for tuition is a dollar too much," Joyce said.
Sources of funds borrowed to pay for college
|Source||% of total families||% of borrowers||Average amount|
|Parents||Federal PLUS loans||6%||36%||$10,701|
|Private education loan||4%||22%||$6,910|
|Parent home equity loan or HELOC||3%||20%||$10,853|
|Retirement account loan||1%||5%||$6,299|
|Students||Federal student loan||28%||77%||$5,075|
|Private education loan||8%||23%||$7,694|
|Source: Sallie Mae/Gallup "How America Pays for College" survey, released August 2008.|
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