A Millionaire Corner survey of affluent investors found that 28 percent reported education costs to be their primary source of debt.
Parents are relying more on grants and scholarships than other types of funding to help cover college costs, according to a Sallie Mae study released Tuesday. Grants and scholarships cover 30 percent of college costs for a typical American family, the survey of 1,602 undergraduates and parents of undergraduates found.
Other college funding sources include personal income and savings (27 percent), student borrowing (18 percent), student income and savings (11 percent), parental borrowing (9 percent) and contributions from relatives and friends (5 percent).
The recession and prolonged economic recovery has placed added stress on parents’ ability to pay for college from the income and savings, the study finds. Parents’ average out-of-pocket spending has decreased by 35 percent since 2010 with the result that over the last three years, parent income and savings has paid for a smaller share of total college costs: 27 percent this year compared to 37 percent at its peak in 2010.
As a result, there is an increased reliance on 529 college savings plans. More families (17 percent) used 529 college savings plans to pay for college this year than in any other year. Eleven percent of low-income families reported using 529 plans, up from 5 percent in 2012. Middle-income families’ participation in 529 college saving plans has grown from 12 percent in 2012 to 16 percent this year, while more than one-fourth (26 percent) of high-income families—up from 16 percent in 2012—are invested in these plans.
While 85 percent of parents (the highest percentage in the last five years) strongly agree that college is a worthwhile investment in their childrens’ futures, they are also increasingly cost-conscious. “Most eliminated colleges from their choce set due to cost at some point during the admissions process,” the report states, “and almost all took at least one action to make college more affordable such as increasing work hours, having the student live at home, or filing education tax credits.”
Worry about paying for college subsides with age, according to a 2013 Millionaire Corner study of Main Street investors with a net worth between $100,000 and $1 million (not including primary residence). Sixty-percent of investors under 45 said they are concerned about financing the education of their children compared with 43 percent of those between 45 and 54 and 29 percent of Baby Boomers ages 55-64.
A 2012 Spectrem’s Millionaire Corner survey of affluent investors found that 28 percent reported education costs to be their primary source of debt. Not surprisingly, younger and less affluent investors were more likely to be impacted by paying for college, with those with less than $100,000 in investable assets the most likely to be burdened by student debt. Thirty-seven percent identified education costs as a source of debt, compared to 20 percent of individuals with investable assets of $1 million or more. More than 44 percent of investors younger than age 40 said paying for college has led them into debt.
Close to half of the older parents (47 percent of investors in their 40s and about 46 percent of investors in their 50s) reported paying 100 percent of these college costs. The vast majority of families surveyed – more than 75 percent of investors age 40 and younger and more than 80 percent of investors in their 40s and 50s – say they have planned for a long time to pay for the educational expenses of their children. About one-third of investors in their 40s and 40 percent of investors in their 50s have had to cut back on other spending to pay for their children’s college expenses.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.