Federal and private loans are the top methods for making up a savings shortfall to pay for college. (iStock)
Most families plan to do some borrowing to pay for college despite saving for this milestone event, a recent survey said.
Roughly 42% of families said they planned to rely on federal student loans and 16% said they would use private loans to pay for college, according to the College Ave survey. These parents estimated they would borrow more than $46,000 over four years. Some families (19%) plan to make up for their college savings shortfall by borrowing up to $68,000 in parent loans.
Besides borrowing, families are also looking at debt-free options to raise cash or cut costs to pay for college. For example, 56% of families are budgeting for four years of schooling, and 10% plan to have their students live at home. Seventeen percent said they planned to take a second job or side hustle to pay for college and 39% said their child would work to help contribute to costs.
“Over and over again, our College Ave survey showcases that funding a college degree is a priority for families,” College Ave Chief Marketing Officer Angela Colatriano said. “With so many resources available to pay for college – like scholarships, grants, income and savings, loans and more – it can feel overwhelming putting the pieces together.”
If you are currently in school or starting soon, and you need more financial aid than what you can receive through the Free Application for Federal Student Aid (FAFSA), consider taking out a private student loan. Visit Credible to find your personalized rate without affecting your credit score.
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Tuition costs more than expected
About 66% percent of college students said college costs were more than they expected and 26% said that these costs rang in at $10,000 or more, according to a different College Ave survey.
The cost of higher education remains a significant expense for families who often underestimate the price. Costs have skyrocketed over the last 40 years, even after adjusting for inflation, according to figures reported by the Education Data Initiative.
From 2000 to 2020, average post-secondary tuition inflation outpaced wage inflation by 111.4%. Today, students, on average, can expect to pay $26,027 per year to attend a public four-year in-state university. Out-of-state students and those attending a private school typically pay more.
“Perhaps that’s why the majority report that paying for college is stressful (68%) and, for some, confusing (46%),” College Ave said. “Despite the surprises, stress and confusion, many college students demonstrate a remarkable commitment to their education and find resourceful ways to fund their college education while balancing their personal financial goals.”
Private student loan borrowers can’t benefit from federal loan relief. But you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.
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Tips for borrowing smartly
Many families plan to borrow money to shoulder the increasing costs of college. If you plan to take on debt to pay for school, here are some things you should consider in advance to keep it manageable:
Borrow what you can repay
The rule of thumb is not to borrow more than the student’s expected first year’s annual salary.
“Try not to borrow in total more than your child expects to make in their first year’s salary,” according to CollegeAve. “By doing so, you are likely to be able to repay your student loans within 10 years.”
Know your payment amount
Keeping debt manageable requires understanding how much you owe in order to budget. However, 40% of respondents did not know their student loan monthly repayment amount.
Choose repayment terms that make sense
Flexible repayment options tailored to your needs can help you stay on track with your obligations. Some borrowers choose lower monthly payments over a longer term, while others opt for a shorter repayment term.
Begin repaying early
Starting the clock on repayment today, no matter how small the amount, can help reduce the total cost of the loan.
If you’re borrowing private student loans to pay for college, it’s important to find a lender who offers reasonable rates, flexible repayment terms and is a provider you can trust. Visit Credible to learn more about private student loan options and get personalized rates from multiple lenders without impacting your credit score.
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