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Fewer parents can afford to pay the bulk of college tuition

Tuesday, July 23, 2013 | 3:53 p.m. CDT

WASHINGTON — College costs are driving decisions about which schools to attend, what to study and even where to live, according to a report from loan giant Sallie Mae.

Parents no longer foot the largest portion of the bill, according to the lender's annual survey. That role goes to grants and scholarships, with student loans coming in third.

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While the recession has largely passed, economic worries have not and many families are making college choices driven by fears of tuition hikes and job losses, according to the survey.

"Parents are willing to stretch themselves," said Sarah Ducich, Sallie Mae's senior vice president for public policy. "It's not that they're not willing to pay. It's that their income is not keeping up."

College spending per student was about $21,000 during 2012, down from a peak of $24,000 in 2010, according to the Sallie Mae-Ipsos Public Affairs report.

The annual survey of student financial aid found students earned about $6,300 in grants and scholarships to pay for college costs, taking the top spots from parents.

Parents chipped in $5,727 on average, a decrease of 35 percent since 2010.

Student loans were the third most common source to pick up the bill for courses, housing and books. The average student borrowed $8,815 in federal loans.

The rate for those loans was the subject of debate in the Senate last week, as lawmakers considered a compromise that would offer some students lower rates for the next few years but would prescribe higher rates for future classes. The Senate is expected to vote on that White House-backed compromise this week.

"Rates on every single new college loan will come down this school year, offering relief to nearly 11 million borrowers," Education Secretary Arne Duncan said Tuesday.

The White House estimates the average undergraduate student would save $1,500 in interest charges if Congress acts before leaving town for the August recess. A vote has not been scheduled.

Last year, the average family turned to grants and scholarships to cover 30 percent of college costs. Parents' income and savings covered 27 percent of the bill and student borrowing covered 18 percent.

"We have moved into a post-recession reality in how people pay for college," Ducich said.

Parents' enthusiasm for college has not shriveled, though. The survey found 85 percent of parents saw college bills as an investment in their children's future.

"We're in a new normal where big ticket items like college, families will pay for them but won't stress about them too much," said Cliff Young, managing director at Ipsos.

One-fifth of parents added work hours to pay for college and half of students increased their work hours, too. The report found 57 percent of families said students were living at home or with relatives, up from 41 percent last year and 44 percent in 2011.

Among other strategies employed to deal with costs:

  • One-fifth of students from low-income families chose to transfer to less expensive schools.
  • About one-fifth of students said they changed majors to fields that were expected to be more marketable upon graduation.
  • In all, 67 percent of students and their families eliminated colleges at some stage during the application process because of costs, up from 58 percent in 2008.

"It forced them to adopt new behaviors of savings and ways to find nickels and dimes," Young said.

The tuition sticker price at public four-year colleges is up 27 percent beyond overall inflation over the last five years, according to the latest figures from a separate study from the College Board. This past year it rose nearly 5 percent to an average of $8,655 nationwide. Including room and board, the average sticker price at public colleges is now $17,860, andstudents pay on average $12,110. At private four-year colleges, the average full tuition price is now just under $40,000, with the average student paying $23,840.

What does that mean for the average college student?

About two-thirds of the national college class of 2011 had loan debt at graduation, and their debt averaged $26,600, according to the most recent figures from the California-based Institute for College Access and Success. That was an increase of about 5 percent from the class before them.

The Ipsos telephone poll was conducted between April 10 and May 9 with 802 parents of undergraduate students aged 18 to 24, and 800 18- to 24-year-old undergraduate students. The survey has a margin of error of plus or minus 2.5 percentage points.


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Comments

Jimmy Bearfield July 23, 2013 | 2:03 p.m.

How many of those parents could afford to pay if they hadn't spent the previous 18 years buying things they really didn't need, such as cable? A lot of pennies can add up over the course of 18 years, and there are plenty of opportunities (e.g., 529) to grow that savings with minimal risk.

(Report Comment)
hank ottinger July 23, 2013 | 5:44 p.m.

Of suffering from stagnant wages, rising health care costs, food and fuel costs, and so on. And of course, increased costs per semester. It ain't just about folk spending their wages at Best Buy, JB. It's tough to make ends meet if you're in the dwindling middle class. Add ten grand to your annual budget, and see where you are, assuming you're a working, middle-class citizen.

(Report Comment)
Mark Foecking July 23, 2013 | 5:55 p.m.

However, saving two or three thousand per year, over 18 years, can add up to $40-60 thousand dollars, which will take a big chunk out of most college expenses. Two or three thousand should not be a lot for a middle class family - that's about 100 pizza dinners or a couple of iPhones per year. Brown bagging your lunch can save over a thousand per year.

Many people I know, even poor ones, could be a lot better off if they ordered their priorities properly. But there's just all this great fun STUFF to do and have these days!!!

DK

(Report Comment)
Jimmy Bearfield July 23, 2013 | 5:56 p.m.

Hank, the average taxpayer gets a ~$2,900 federal refund. Invested even conservatively -- instead of giving the government an annual interest-free loan -- that would cover a lot of tuition. Those who rent out their basements and spare bedrooms to college students but don't declare it on their taxes have an additional revenue stream.

(Report Comment)
Corey Parks July 23, 2013 | 6:12 p.m.

They can only blame govt backed student loans.

(Report Comment)
Richard Saunders July 24, 2013 | 11:10 a.m.

@Jimmy, if you haven't noticed we live in a ZIRP (zero interest rate policy) world. There are no "minimal risk" opportunities to earn a decent return, let alone one that outpaces the inflation rate of tuition, which, if you haven't noticed either, is skyrocketing due to the aforementioned student loan bubble.

Of course, without said bubble, Columbia wouldn't look quite so "beautiful and shiny" with all the new student housing, and the tax revenue these kids provide. Meanwhile, most of these kids will find themselves debt slaves, as they too will be unable to save enough to retire their loans promptly, or worse yet, be unable to afford to purchase a home. And those are the lucky ones that find jobs. The rest? They are going to be bled to death for the remainder of their lives, as bankruptcy is of no help.

Uncle Sugar giveth, and Uncle Sugar taketh (as there's STILL no such thing as a free lunch).

(Report Comment)
Jimmy Bearfield July 24, 2013 | 11:51 a.m.

Yes, Richard, interest rates are lower than the rate of inflation. But whether it's a 529 plan or another vehicle, there are still plenty of low-risk investment options. And don't forget that in the case of the 529, the tax benefits can offset the low returns that come with low risk.

(Report Comment)
Richard Saunders July 24, 2013 | 12:40 p.m.

Okay, so even though it's impossible to save purchasing power over time (that rate differential), one would be a fool not to? As for tax gimmicks, they're hardly adequate to keep up with the theft of wealth d.b.a. "The Federal Reserve System."

As long as they continue to monetize US Treasurys, they do nothing but to destroy the financial world as we know it, ruining both savers AND entrepreneurs (who find it difficult to achieve a return higher than what they can borrow at) in the process.

This is what happens when debt is turned a currency. It is a pure ponzi that will continue until debt service costs overwhelm all revenue streams. Which is why they're busy destroying the financial system via ZIRP in order to delay reckoning day for just a little while longer.

You can have a productive economy, or a bloated government, but not both. So, in the attempt to do so, we'll wind up with both going bankrupt. This process, for example, will eventually bankrupt the City of Columbia, and all other entities with pension plans, as they will have to fill in the investment shortfall with higher payments. The alternative is for the pension plans to seek out higher rates of return in riskier investments (ala junk bonds).

In other words, this disaster is far, far beyond what can be avoided by prudent saving and investment. Thing is, the collapse is only just now getting started. We've got a lot of pain left to endure (in the form of bad debts) before any solution can appear.

(Report Comment)
Jimmy Bearfield July 24, 2013 | 12:59 p.m.

So you're saving nothing for retirement or a rainy day?

(Report Comment)
Richard Saunders July 24, 2013 | 1:29 p.m.

Of course I save, just not in dollars (or any other form of intangible "paper"). Also, I'm building my own organic farm that will not only feed my family, but ensure an income to support the property as I get older.

Anyone who thinks their pittance sitting in a savings account/retirement plan is going to be worth anything in the future is going to be in for a big surprise as hyper-inflation is the only exit to this game called ZIRP. Are you aware that the major banks are using customer deposits as collateral for loans in order to prop up the world's financial markets? (Google JP Morgan and "London Whale" for details about the $400B in "excess reserves" they used in an effort to make some extra cash for themselves. Or worse yet, MF Global, who under the leadership of one Jon Corzine, stole ALL of the customer funds in order borrow money from JP Morgan, in order to buy Greek bonds. Never mind that the money included farmer's accounts which they used to buy seed.)

Back in the good ole days, banks would've loaned this money out to businesses to meet demand. But as I mentioned above, there is no longer any productive use for the money, as the overall over-indebtedness has reduced demand by pulling it all forward from our future. (Look at all of the gov financed new cars sitting on car lots. Exactly how do millions of idle cars rotting away does society "need?")

Oh, and speaking of our future... it is named "Detroit."

(Report Comment)
Jimmy Bearfield July 24, 2013 | 2:00 p.m.

We share similarly bleak views about the future. However, I'm investing anyway in case things don't out as badly as I fear. I'd rather have the money saved and be able to turn it into something else if need be before leaving the country. Maybe buy some land in a country where it's cheap to live and relatively unaffected by a global financial crisis. The trick will to identify when things are about to go into crisis mode so I can cash out beforehand when that money will still buy something.

(Report Comment)

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