BACK

Student credit cards and young credit

How Americans pay for college: A lot of borrowing

Summary

Credit cards are rarely used to pay college costs, a new survey says, and when they are, it’s mostly out of desperation.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

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.

Poll results

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

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 borrowersAverage amount
ParentsFederal PLUS loans6%36%$10,701
Private education loan4%22%$6,910
Parent home equity loan or HELOC3%20%$10,853
Credit cards3%19%$5,822
Retirement account loan1%5%$6,299
Other loans5%33%$9,894
StudentsFederal student loan28%77%$5,075
Private education loan8%23%$7,694
Credit cards3%8%$2,542
Other loans8%23%$7,922
Source: Sallie Mae/Gallup “How America Pays for College” survey, released August 2008.

See related:  Credit card lending standards tighten sharply

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Student credit cards and young credit

Turning 18 and credit cards: legal rights and responsibilities

At 18, young adults become fully eligible for, and responsible for, credit decisions. Can you — or your teenage son or daughter — handle it?

See more stories
Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

Questions or comments?

Contact us

Editorial corrections policies

Learn more