American families spent an average of $23,757 to send their kids to college during the 2016-2017 school year. That’s according to a study conducted by student loan company Sallie Mae. Now in its 10th year, the annual “How America Pays for College” survey asks 800 undergraduate students between the ages of 18 and 24 and 800 parents of undergraduate students how they covered college costs during the past year.
While there is much talk about parents paying for college, the reality is their income and savings cover only a portion of the total cost. “Students and parents seem to really be sharing the cost of tuition about equally,” says Ellen Roberts, a spokesperson for Sallie Mae.
Financial experts say it’s good students are helping pay for college, but families need to take care that young adults don’t graduate saddled with an unreasonable amount of debt.
[Read: Kids Headed to College? Don’t Let Them Delay Your Retirement Plans.]
Grants and scholarships. Roberts says that, for years, parents’ income and savings have been the primary source of money for college. However, that changed last year when grants and scholarships moved to the No. 1 spot.
For the 2016-2017 school year, Sallie Mae found the average family covered college costs using a variety of sources that broke down to the following percentages:
— Grants and scholarships: 35 percent
— Parent income and savings: 23 percent
— Student borrowing: 19 percent
— Student income and savings: 11 percent
— Parent borrowing: 8 percent
— Other family and friends: 4 percent
The increased use of grants and scholarships may be linked to increased filing rates for the Free Application for Federal Student Aid. Known as FAFSA, this form is used by both the government and many schools to award financial assistance.
[Read: How This Millennial Paid Off $81,000 in Student Loan Debt.]
Confusion about college savings options. Although not the largest source of money for college, parent savings is still an important component. It’s also one many people find confusing. “In general, what we find is that parents have some studying to do themselves,” says Keith Bernhardt, vice president of retirement and college products for Fidelity. In particular, they may overestimate how much their savings factors into the financial aid formula. Bernhardt notes a family with $10,000 in savings may only be expected to contribute $600 of that toward college in the first year. However, he’s found many people think they will be required to use most or all of that money for college.
Parents also seem slow to embrace 529 plans. Despite providing a way to pay for higher education costs with tax-free dollars, only 13 percent of families reported using savings from those plans last year. That’s the lowest percentage in five years and down from a high of 17 percent in 2013. “We were surprised to see an absence of growth in dedicated college plans,” Roberts says.
Mixed views on student loans. When it comes to borrowing, there are divergent thoughts on the matter. “Always be careful of financial aid that comes in the form of a loan,” Bernhardt says. Student loans can give parents and students a false sense of security since repayment is usually deferred until after graduation. At that point, depending on the type of loan, interest could have been compounding for four or five years. When it does come time for repayment, the monthly amount can be both surprising and overwhelming.
Chris Chaney, vice president at Fort Pitt Capital Group in Pittsburgh, says it’s important for students to feel responsible for their education. “I still recommend the children borrow money,” Chaney says. “Ownership is everything.”
For affluent parents, Chaney says an effective strategy can be to promise to pay off a portion or all of a student’s loans after graduation. That can provide motivation for students to take their classes seriously.
Families with less financial means should consider how best to split the cost. “You make sure [students] have to stretch,” Chaney says. They should have to work a little to pay their portion of the bill so they feel invested. Meanwhile, parents need to make sure they’re not jeopardizing their own financial future. “My biggest concern is that they don’t sacrifice their retirement for the sake of their child’s education.”
[Read: Savings Bonds vs. 529 Plans: Which Is Best for College Savings?]
Importance of school selection. Finance experts are quick to note college costs wouldn’t be so burdensome if more families would take price into consideration when making enrollment decisions. “You hear stories where people say, ‘just pick whatever one you want, and we’ll make it work,'” Bernhardt says.
Chaney says too many people focus on the name and prestige of a school rather than its cost. He argues that, at least at the undergraduate level, there is no reason to pay for a big name to get a quality education. “It’s not a failure to choose something that’s not a marquee school,” he says. “One of the smartest things [people] can do is find a school that doesn’t pose an undue burden on parents or students.”
More parents may be getting that message. According to the Sallie Mae survey, 45 percent of respondents say the cost of a school has no relationship on its quality. “That’s something we didn’t expect to see,” Roberts says.
If more parents and students become inclined to pick the school with the lower price tag, it could become cheaper for everyone.
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Who’s Footing the College Tuition Bill? originally appeared on usnews.com
