A study recently released by private student loan lender Sallie Mae confirms what many independent college advisers sensed over the past year: parents are opening their pocketbooks a little and seem increasingly willing to spend more on college than in previous years.
According to Sallie Mae’s annual report, “How America Pays for College, undergrads and their families spent an average of $24,164 in the 2014-15 academic year—up a whopping 16 percent from the year before. This represents the biggest increase since 2009-10, with expenses including tuition, books and living expenses.
Families contributed 22 percent more of their income and savings toward college costs last year. They also scaled back on cost-cutting measures many implemented in the wake of the recession, such as choosing colleges closer to home to reduce transportation costs or having a student living at home.
And how did advisers know this was happening? The parental total focus on state schools widened to include more private colleges and universities as well as out-of-state public institutions. By the end of last year, families were often more inclined to make up financial differences between total cost and merit scholarships offered by institutions anxious to recruit their children.
“It was a subtle shift,” said a Virginia-based independent educational consultant. “But you could see the results in final enrollment decisions made by students and their families.”
In comments provided to the Wall Street Journal, Marie O’Malley, senior director of consumer research at Sallie Mae and co-author of the report suggest parents and students are becoming more confident in the economy and employment prospects following graduation. “As unemployment declines and home values improve, fear of running out of cash or not having sources to tap for funding is lessening…” To support this view, Sallie Mae reports that only six percent of parents are worrying about their home values decreasing this year, as compared to 12 percent last year and 25 percent in 2010.
Sallie Mae’s survey of 800 undergrads and 800 parents of undergrads also found that more families borrowed to help pay for college in 2014-15, than a year earlier. Thirty-eight percent of families borrowed—up from 35 percent, but still below the 46 percent in 2010. Families that borrowed spent on average 34 percent more ($28,386) on college than those that didn’t ($21,219). And within families that borrowed, students were the primary signer for three-quarters of the total debt.
Among the borrowers were strong signs of fiscal responsibility. Eighty-nine percent completed the Free Application for Federal Student Aid (FAFSA), compared to 78 percent of non-borrowers; 73 percent of students worked while attending school, compared to 68 percent of non-borrowers; and 68 percent of students reduced personal spending, compared to 55 percent of non-borrowers.
And fewer families reported choosing not to consider colleges because of cost—62 percent as compared to 68 percent a year earlier. Interestingly, students were much more likely than parents to rule out a particular college because of price. Three-quarters of the students polled said they eliminated a school for this reason as opposed to half of the parents.
While family spending on college across all income levels increased, those with annual income of at least $100,000 spent much more on college—about $12,000 more than other families. No surprises there.
At the end of the day, the overwhelming majority of families (97 percent) see college as an “important and worthwhile” investment. And according to Sallie Mae, “nearly nine in 10 are willing to stretch themselves financially to meet the cost of college.”