The news media likes to talk about the student debt crisis, but the main statistic we hear is the $1.2 trillion ($1.3 on some stations) of total student debt. Without more information, it’s hard to form a clear picture of what students and their families are up against. Luckily, Sallie Mae has compiled extensive data in their report How America Pays for College 2015.
Funding Sources for College
Families are spending more on college than they ever have before. In fact, between 2014 and 2015 college spending increased by 16% from $20,882 to $24,164.
What might surprise you is that the number one source of higher education funding is parent income and savings. Parent income and savings comprises 32% of the funds used to pay for college and university, even outpacing student and parent borrowing, which combined totals 22%. Scholarships and grants are still heavily supporting the students of our nation with a whopping 30% contribution.
2015 is the first year in five that parental contribution exceeded scholarships and grants – a good sign for the economy?
Lastly, student income and savings are responsible for 11% of higher education funding, and 5% comes from relatives and friends.
With nearly a quarter of all funding coming from students or parents borrowing, it’s crucial that Americans understand the debt they are undertaking. Student and parent loan debt for college is the only debt Americans take on without knowing what their repayment amount will be, and this proves very dangerous for students who underestimate the repayment or overestimate their post-college earning capacity. In fact, more than one in 10 parents are extremely worried their child will not find a job after graduation. This is why financial literacy education is paramount for students and parents considering college loans.
American Families Doing it Right
Many students and their families are taking positive and responsible financial actions to offset the burden of school debt. For example, 68% of students who borrowed money for school are reducing their personal spending. This is compared to 55% of non-borrowers.
Of students who borrowed money for school, 73% are working while attending, compared to 68% of non-borrowers.
This is the statistic we wish was higher: 35% of families are making loan payments while their child is in school to cut costs.
Would that number be higher if families understood how much money they could save by making payments before the student graduates? We think so.
That’s why we advocate for schools to use AwardLetter. With AwardLetter, schools can educate students and their parents to make sure they understand the difference between subsidized and unsubsidized loans. With integrated videos, links to resources and definitions of confusing financial aid jargon, parents and students will have a better grasp of their costs, what they need to borrow, what they owe, how they can reduce their repayments, and much more. Schools can easily improve their students’ financial literacy with this amazing tool.
What We Learned from Sallie Mae
In 2015, parental contribution to higher education funding increased by 17%, a huge leap compared to recent years. However, parent and student loans still comprise nearly a quarter of funding, and for many students, loans are their primary source of funding. For the reasons, we stress financial education and literacy as a top priority for college financial aid departments, in order to
- Reduce student over-borrowing
- Increase student satisfaction/improve the student experience
- Reduce default rates
If your school is interested in learning more about AwardLetter, call 602.643.1300 or fill out this form today.