What Percent of Parents Pay for College?
Gain insight into how families navigate college financing. This article reveals the prevalence of parental support and the diverse ways and reasons contributions are made.
The cost of higher education in the United States has seen a substantial increase over recent decades. Tuition, fees, and living expenses represent a significant financial undertaking for many families. Parents frequently assume a considerable role in funding their children’s college education, which often requires careful financial planning and the utilization of various resources.
Overview of Parental Contributions
A 2024 survey revealed that 93% of parents intend to assist their children with college payments. The average parental contribution for the 2021/2022 school year was approximately $13,000 annually. During that academic year, parents contributed about 43% of college costs from their income and savings, with an additional 8% covered through loans, totaling around 51% of expenses. American families, on average, pay 48% of college costs out-of-pocket, amounting to about $13,760 per student for the 2023-2024 academic year. Between 1980 and 2023, the average price of tuition, fees, and room and board surged by 155%.
Methods Parents Utilize for Payment
Parents employ diverse financial strategies to fund college education. Current income remains a primary source, with 63% of families reporting its use for college expenses in the past year. This involves allocating a portion of their regular earnings directly towards tuition, fees, and living costs. Many families leverage their savings, with 77% using a combination of income and savings for college payments.
Tax-advantaged savings vehicles, such as 529 plans, are a common approach. These state-sponsored plans allow earnings to grow tax-free and qualified withdrawals to be exempt from federal income tax when used for educational expenses. Approximately 35% of families utilize college savings plans, including 529s, with the average 529 account balance being around $30,295 as of June 2024.
Loans serve as another method. About 18% of parents resort to borrowing funds for their child’s higher education. Federal Parent PLUS loans are a notable option, enabling parents of dependent undergraduate students to borrow up to the cost of attendance minus other financial aid received. As of late 2023, nearly 4 million Americans collectively owed $112.2 billion in outstanding Parent PLUS loans. Private student loans, offered by banks or other financial institutions, represent a borrowing avenue for parents to cover remaining educational gaps.
Key Determinants of Parental Financial Involvement
Several factors influence the extent of parental financial involvement in college costs. Parental income levels play a significant role, as higher income generally correlates with a greater capacity for financial contributions. The Free Application for Federal Student Aid (FAFSA) utilizes parental income, along with other financial information, to calculate the Student Aid Index (SAI). A higher parental income typically leads to a higher SAI, potentially reducing eligibility for need-based financial aid.
Family assets also impact financial aid eligibility, although the assessment varies. The FAFSA generally assesses parental assets at a maximum of 5.64% of their value, while student assets are weighed more heavily, assessed at 20%. Certain assets, such as equity in a primary home and qualified retirement accounts like 401(k)s and IRAs, are typically excluded from FAFSA calculations, which can be beneficial for financial aid purposes. The number of children concurrently enrolled in college has historically influenced financial aid, as the EFC was divided among multiple students. However, recent changes under the FAFSA Simplification Act have altered this, potentially increasing the out-of-pocket costs for families with more than one child in college at the same time.
The type of institution a student attends significantly affects parental contributions due to varying costs. Private institutions and out-of-state public universities generally have higher tuition and fees compared to in-state public options, directly impacting the financial burden on parents. A student’s eligibility for grants and scholarships can substantially reduce the amount parents need to contribute. These forms of financial aid do not need to be repaid and directly lower the net cost of attendance.