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Parents Paid More Out Of Pocket, Borrowed Less But More Students On the Hook For Loans: Sallie Mae Study

Families spent about the same amount on college this year as they did last year and, to do so, they took out less money in federal or private loans than they did the year before and paid more out of pocket.

In the process, parents ended up paying nearly half of the tuition bill through their savings while grants, scholarships, loans, gifts from friends and families and student income and savings took up the remaining half, a Sallie Mae study found.

Titled “How America Pays for College: Sallie Mae’s National Study of College Students and Parents,” a 58-page report resulting from the study involved interviews of 1,601, half of whom were parents while the remainder were students aged 18 to 24. The interviews were conducted by phone between April 14, 2014 to May 15, 2014.

The timing of interviews in the springtime allowed families to report amounts used as opposed to projected sums to meet the cost of college.

Students were selected by gender, age, race, region and college. African-Americans and Hispanics made up 100 samples.

Sallie Mae’s research team examined all resources used by families in an academic year, including savings and loans such as home equity loan retirement funds.

Including several pages of piecharts, graphs and tables, the study shows the average amounts and percentage of costs paid from each funding source. It also shows how much families paid for college.

This year, researchers found changes in funding choices or amounts paid.

The Role of Parents

Almost all families surveyed embraced cost-saving measures to reduce what they paid for college but only 38 percent of families have a financial plan to pay for all years of college.

Families with a plan paid 20 percent more for college than those without. The students in such families attended a private college or universities full-time and lived away from home.

One out of five families paid out of pocket funds but the majority relied on financial aid. Nearly 81 percent of families filed the federal Financial Aid Forms for Student Assistance or FAFSA forms.

About 60 percent of families reported using grant or scholarship money, which covered 31 percent of college tuition.

Compared to 2013, families increased their expenditure by $839 while decreasing the total spent on college by $295.

Among families spending less than $5,000 on college from 2013 to 2014, about 40 percent of parents contributed their income and savings.

For families who contributed between $5,000 and $20,000, close to 58 percent of parents used out-of-pocket funding. Among families who spent $20,000 or more, 74 percent spent their own funds.

This year, parents contributed more toward financing their children’s education by savings or workplace overtime after three years of decreases. The percentage of contributions by parents changed more than that of students from 37 percent to 27 percent in 2010.

This signals an end to a three-year downward move in out-of-pocket expenses, starting with 46 percent in 2010, 41 percent in 2011, 40 percent in 2012 and 38 percent in 2013.

Researchers attributed this to parents worrying less about money this year and 98 percent of families describing college as a “worthwhile investment”. The average sum increased slightly from $5,727 in 2013 to $6,288 in 2014.

Families reported parents and students paying an average of $8,850 together, making up 42 percent of the total paid for college.

A sense of responsibility appears to permeate the family college financing process.

With respect to these roles, three in five families believed parents and students must share the costs of tuition. Of those who believe it is the role of either one, twice of them think it lies with students as they state that it does with parents.

However, actual practice and belief differ.

In about 31 percent of families, parents did not give any last year — either through out-of-pocket or borrowed funds. Another 31 percent of students paid nothing.

This year, students have borrowed 15 percent on average against their parents’ 7 percent. Out of a complete financial package, parental income and savings made up 30 percent, grants and scholarships comprise 31 percent, contributions from relatives and friends amount to 4 percent and student income and savings added up to 12 percent.

The 12 percentage equalled an average of $2,562, up from $2,284 in 2013. In fact, in the last four years, student contributions to the whole of college financing represented 11 to 12 percent.

With respect to socioeconomic status, high-income parents gave more than middle- and low-income parents. Low-income students paid more for their own education than middle-income and high-income students.

Families also felt that the roles of borrowing are shared. That, too, however, was not reflected consistently with parents’ actions.

Of the students who borrowed a federal or private loan, under a one-third reported parental contributions. Roughly 71 percent of students said they are paying off the loans.

Of the parents who borrowed, students assumed responsibility. Only 12 percent of students reported parents are making parents.

Most families expect students to pay back parent loans, with 24 percent considering students to be responsible.

About 35 percent of families borrowed to pay for college last year, and when they did, both students and parents borrowed less than the previous year, especially low-income students.

In a majority of the time, students were the only borrowers so loans covered twice as much of costs as parent loans did.

Namely, with out-of-pocket increases, borrowing decreased. Borrowing accounted for 22 percent of costs in 2014, a 27 percent drop over the past two years.

Half of all families surveyed who borrowed always planned to do so. A quarter knew borrowing was an option. They hoped they wouldn’t have to make the choice; another third did not plan on borrowing but made the decision when savings or financial aid did not come through for college tuition expenditures.

Type of School

Families reported the highest enrollment in two-year public colleges since the survey’s inception in 2008 — namely, about 34 percent, up from 30 percent for the previous year.

By comparison, students enrolled by 41 percent at four-year public colleges and universities, down from 46 percent over the last few years, and 22 percent at four-year private institutions, about the same as the year before. An equivalent percentage at four-year private colleges remained at 27 percent.

About two-thirds of students and their families ruled out certain colleges because of cost. Enrollment at public colleges or universities reached its height at 77 percent of students, mainly two-year institutions.

Cost of Tuition, Socioeceonomic Status

In recent years, the cost of tuition averaged $20,882 after a height of $24,097 in 2010. The amounts corresponded with the sums paid in the last three prior years.

Two-year colleges and universities charged $11,012 in tuition on average, a slight increase of $344 from the year before but $10,060 less than the costs of four-year public institutions.

The four-year public institution averaged $21,072, an increase of $1,276 from 2013 but the same figure in 2012.

With these costs, the amount a family spent on college stayed stable for the past three years. College costs rise each year. Families choose their method of payment and the amount they want to contribute.

School choice, in-state pricing, commuting and acceleration of coursework all factor into cost controls for families.

This year, four-year private colleges cost the most at $34,855, nearly $4,000 more than at four-year public institutions.

With respect to class, the gap between high-income family expenditures and that of low- or middle-income families was $7,000. High-income families reported paying $26,556 on average.

Little difference existed in tuition expenses between low- and middle-income families, with $19,471 spent by the former to $19,466 for the latter.

As family income increases, student obligation decreases. Low-income families are more likely to believe that the student must pay for college, accounting for 31 percent, than middle income families at 17 percent or high income families at 9 percent.

As for middle-income families, two-thirds believed in shared responsibility on the part of the students and parents.

High-income families reflected more belief in greater parent responsibility with 48 percent, pinning responsibility for college tuition on parents with about 28 percent with some financial aid and 20 percent being wholly responsible.

Race As A Factor For Perceived Responsibility

In terms of race, Hispanic families are most likely to support shared responsibility for covering college tuition costs.

One-third of Hispanic families believe students and parents should both be responsible for college financing, compared with 28 percent of African-American families and 19 percent of white families.

White families are more apt to believe students are most responsible for paying for covering the costs of tuition.

Nearly 24 percent of white students had some form of parental support while 22 percent were solely responsible, compared with 32 percent of African-American families and 35 percent of Hispanic families.

First In the Family

Some 30 percent of students surveyed were identified as the first in their family to attend college.

As a consequence, the second generation of college students in those families took more action to save money such as choosing to live at home. These practices led to an 19 percent savings for this cohort as compared with the spending habits of the previous generation.

The first generation paid more out of their own pocket with parents more likely to be concerned about quality-of-life issues such as tuition increases. They were also half as likely to have a plan to pay for college as second-generation families did.

Found an error in this article? Please contact us!

Last updated August 2014

Vladimire Herard, M.S. (99 Posts)

A print journalist for 21 years, Vladimire Herard freelanced for the National Senior Living Providers Network, (nslpn.com), the Guidance Channel and Longtermcare.com. Under CD Publications, Ms. Herard wrote about senior health, substance abuse prevention, and elderly housing. Under Inside Washington Publishers, she covered health care financing for Inside HCFA and food and product safety issues for FDAWeek. Ms. Herard also covered education, crime, and county affairs for daily newspapers such as the Chicago Defender. She currently covers senior long-term care, the pharmaceutical industry and issues and education. Ms. Herard resides in Chicago.


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