The College Challenge: Which Way to Pay
Sallie Mae is the leading source for saving and paying for college. Through various subsidiaries, it manages $188 billion in education loans, serves 10 million students and parents, and also manages more than $19 billion through its 529 savings plans (including Upromise). Sallie Mae just released a report entitled "How America Pays for College 2009" based on the findings of a survey done by Gallup from mid-March to mid-April 2009.
The report paints a picture of how American families, with students aged 18 through 24, are paying for undergraduate tuition in spite of the economic downturn. It would be logical to assume that with the decrease in 529's, investment accounts and home equity values, parents would be forced to borrow more money to pay for college. However, the study states that 58% of families in 2008-2009 who had students in college, did not borrow any money. The other 42% who did borrow money paid on average 30% more for college tuition than those who didn't borrow, indicating that the loans were taken out somewhat by choice, with parents and students opting for a more expensive school.
The results from the Gallop survey show parents funded 45% of the college cost from their income and savings, 36%, and borrowed 9%. Grants and scholarships accounted for 25% of all college funding, and the survey revealed that students paid for approximately 24% of their education by getting loans (14%) or using their savings and income (10%).
It is apparent from the survey responses, that families and students are still determined to pursue higher education, and students are more cost conscious now than they were several years ago.
Another surprising find from the survey, is that one in four families didn't qualify for federal grants or student loans because they didn't submit the Free Application for Federal Student Aid (FAFSA). Half of the people who didn't fill out the application didn't do it because they either weren’t aware of it, or didn't think they would qualify. All colleges base student aid and grant eligibility for both federal and a college's internal programs, on the FAFSA. The eligibility isn't based strictly on household income, but on a formula that results in an Expected Family Contribution.
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