Most families don't plan for college debt, study finds
Only two in five families in the US had a plan for how to afford all two or four years of college, according to a new Sallie Mae report. Students whose families had a plan borrowed one-third less in student loans than students whose families didn鈥檛.
Prospective students tour Georgetown University's campus in Washington.
Jacquelyn Martin/AP/File
Not thinking ahead about college costs could mean your child has to take out聽more student loans.
Only two in five families, or 39%, had a plan for how to afford all two or four years of college, according to a聽new Sallie Mae report,聽Students whose families had聽a plan borrowed one-third less in student loans than聽students whose families didn鈥檛. The percentage of families that plan ahead has stayed relatively stable since Sallie Mae started tracking it in 2010.
The report, which surveyed 1,598 undergraduate students and parents of undergraduate students, didn鈥檛 address why more families don鈥檛 strategize about paying for college. Some families 鈥� particularly those with聽low incomes 鈥� may not be informed about how to pay for college, or they simply may not have time to do the research on their own, says Bianca Martinez, a former College Advising Corps advisor who now consults with students and families privately.
Additionally, some families are afraid that if they save too much for college, they won鈥檛 qualify for as much financial aid, Martinez says. But while that could be true to some extent, she still encourages families to save.
鈥淚t鈥檚 better to be overprepared than underprepared,鈥� Martinez says.
Make your plan to pay for college
Getting started can be the hardest part, so here are some tips to kick off your paying-for-college plan.
LOOK AT HOW OTHER FAMILIES DO IT
The average family paid 41% of their 2015-16 college costs through parents鈥� and students鈥櫬燾ombined income and savings, 34% of costs through聽听补苍诲听, 20% of costs through聽聽taken out by students and parents, and 5% of costs through help from family and friends, according to the report.
Your paying-for-college plan will likely include a similar mix of funding sources, but the exact breakdown will depend on how much you save, how much you can afford to pay out-of-pocket, and how much need- and merit-based aid your student qualifies for.
TALK ABOUT MONEY AS A FAMILY
Discussing money is uncomfortable for some families, but it鈥檚 important for parents and children聽to be on the same page about what type of schools the聽family can reasonably afford. Aim to have this conversation by your student鈥檚 junior year of high school.
KEEP YOUR OPTIONS OPEN
At first blush, community college may seem to be聽the least-expensive college option and private four-year schools the most costly. But just because a school鈥檚 sticker price is higher doesn鈥檛 mean it will cost you more; you have to factor in the financial aid your student qualifies for at each school. Don鈥檛 rule out a school until you fill out the Free Application for Federal Student Aid, or the聽, and see how much aid each school offers your student.
SET SAVINGS GOALS
Saving for college is about narrowing the gap between the money you have and the money you need. Take stock of the money you already have saved, and use a tool like the Financial Industry Regulatory Authority鈥檚聽聽to help you estimate how much you need to set aside each year to meet your future college expenses. Keep the money in an account where it can grow, such as a Roth IRA, a聽聽or another college savings account.
DON鈥橳 SCRIMP ON RETIREMENT SAVINGS
Set aside money for retirement before contributing to your student鈥檚 college fund each month. In the worst-case scenario, your student can borrow money to pay for college, but you can鈥檛 necessarily borrow money to fund your retirement.
BE SMART ABOUT BORROWING
Although it鈥檚 not ideal, taking out some student loans isn鈥檛 the end of the world. Student loans are considered 鈥済ood debt,鈥� because college is an investment in your student鈥檚 future. Students should borrow all the聽聽they can before considering. And as a rule of thumb, students should only borrow 鈥� throughout all of college 鈥� as much as they expect to earn in their first year in the workforce.
Planning ahead for聽how to pay for college will curb stress as well as give you a financial boost, the report found. Julia Clark, senior vice president at Ipsos Public Affairs, the company that partnered with Sallie Mae on the report, says she personally felt relieved once she put a little money into a 529 college savings plan for her 4-year-old daughter.
鈥淵ou don鈥檛 have to put tens of thousands of dollars away right away,鈥� Clark says. 鈥淛ust getting a little bit going offers some psychological relief.鈥�
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