Looking around and wondering how your classmates are paying for their higher education? Here’s a hint: they’re probably receiving help from their parents, along with a few college scholarships and a student loan.
In 2022, 71% of all college-bound students applied for federal aid to help them pay for higher education. But with so many options when it comes to financial aid, there’s a lot to sort through. Below, you can find the percentage of students that rely on each payment method to cover costs, according to the latest data from Sallie Mae’s How America Pays for College 2021 report.
85% of Students Rely on Parent Income & Savings
No one wants to see a student succeed more than their parents—just follow the money for proof. Parental support is the greatest contributor to college tuition costs, including parental savings, borrowing, and income. The most common source of funds is current income, which covers 68% of all non-borrowed parent contributions.
Other ways parents help foot the bill is through college savings accounts. The most common is the 529 plan.
The 529 plan (also called a Qualified Tuition Plan or QTP) is a prepaid tuition plan that lets a parent set aside money that can be used for qualified educational expenses. Thinking about setting up a 529 plan for your child? Keep in mind that not all higher education expenses fall under this umbrella.
For example, 529 savings can’t be used for indirect costs like transportation. Rules and regulations also vary state by state, so be sure to check the fine print before setting up a 529 savings plan.
72% of Students Earn College Scholarships & Grants
The most common scholarship and grant sources come from the federal government and higher education institutions. Less common sources are private employers and state financial aid. Keep in mind that the federal government provides college grants and scholarships based on financial need, which means a student has to file their FAFSA annually to be eligible for these opportunities.
Pell Grants are the most common federal grants distributed. Pell Grants offer up to $6,345 per year in financial aid. They are awarded based on a student’s EFC number, which comes from their FAFSA form. Keep in mind that this number might shift if a person’s financial circumstances change while attending college.
College work-study programs are another common type of financial aid offered to students. The federal government and colleges provide work-study scholarships to students in exchange for employment during the academic year. One of the most common types of work-study programs is serving as a Resident Advisor (RA) in a dorm.
32% of Students Take Out Student Loans
We’ve all seen the statistics—there’s around $1.7 trillion in student loan debt that 45 million Americans are still paying off. Given most student loans come from the federal government, that’s a lot of money owed to Uncle Sam.
Still, students have options when it comes to paying back their federal direct loans. For example, extended repayment covers a large period of time and has a low rate for monthly payments. Income-based repayment is tied to a person’s discretionary income. Graduated repayment lets a borrower start with a low monthly payment and then gradually scale up.
Not all students opt for direct student loans. Some choose to take out a private student loan instead. These come with a separate set of pros and cons.
- Cons: Private student loans usually accrue interest immediately, and lenders charge fees for late payments.
- Pros: Lenders tend to wait for repayment until a student has graduated. They’re also more likely to offer a reduced interest rate for special circumstances.
53% of Students Use Student Income & Savings
Not everyone applies for undergraduate programs straight out of college. This gives some students time to save money to avoid taking out student loans. In certain situations, a student might have their own savings account, which was set up, managed, and funded by family.
Other students may earn income from a work-study program. As mentioned above, work-study programs can come from federal aid or a college. They can also come from a non-profit or private organization that offers students off-campus employment. In these cases, the income from their job contributes directly to college tuition costs.
21% of Students Rely on Parents Borrowing Money
Most families plan on taking out loans when a student prepares for their college education. For parents, there’s a specific program from the federal government that makes it easy to take out loans on behalf of children: Parent PLUS Loans.
Parent PLUS Loans are federal student loans issued to parents of undergraduate students who are still legally their dependents. Parents often take out PLUS loans to help pay any cost gaps that aren’t covered by the above funding sources like family savings, scholarships and grants, and student loans.
11% of Students Pay with the Help of Relatives & Friends
Families don’t always have to tackle college costs alone. In 2021, 11% of all college-bound families were able to fall back on contributions made by relatives and friends.
The more a family plans their financial approach to college costs, the easier it is to ask for help from others. Platforms like GoFundMe have become especially popular for these types of appeals because they make it easy to lay out financial needs and goals. According to the website, GoFundMe hosts over 100,000 education fundraisers each year.