The Encouraging Truth About How Americans Are Covering the Cost of College

The average annual costs for tuition plus room and board have reached an average $45,000 for private colleges and $35,000 for out-of-state-students at public colleges. When students and parents learn about these staggering figures, panic and resignation can set in.

But it's important to keep in mind that most people don't pay the full sticker price for college — and what they do pay tends to come from a variety of sources, not just from savings or loans. Sallie Mae's 2017 How America Pays for College survey casts light on how families afford higher education costs, and may offer some reassurance that one way or another, you, too, can afford college.

Here are some of the most interesting findings.

1. Few families pay the highest prices you hear about

Despite those high average costs, Sallie Mae found that the average family paid only $23,757 for college in the 2016–2017 academic year.

Why is this so much lower than the scary averages reported in the news? For one thing, the private schools that charge the highest prices account for a small minority of all college students in America. Sure, Harvard is expensive, but most of us aren't going there. Many students go to community colleges, where the nationwide average for tuition and fees is just $3,347, according to Some community colleges are even tuition-free. Other students may attend in-state public universities, where College Board reports the average tuition and fees are below $10,000 a year. (See also: What Does "Free" College Tuition Really Pay For?)

These examples don't include room and board, nor do they include other expenses that students often fail to account for, such as travel to and from school. But even if you factor in those expenses, these costs are a lot lower than the scary headlines would lead you to believe. (See also: 9 College Expenses You Aren't Saving For)

2. Half of students don't pay room and board

According to Sallie Mae's survey, a full 50 percent of college students now live at home with their parents, saving a ton of money on rent and cafeteria food. Even if they contribute to household expenses, the cost is likely to be less than it would be if they lived on their own.

3. Scholarships and grants cover more than you think

Funds that students don't have to pay back, such as federal grants, grants provided by the schools, and scholarships, cover more than a third of the cost of college for the average student. That's the largest funding source, greater than what either parents or students contribute, and it's been on the rise in recent years. In 2016–17, scholarships and grants covered 35 percent of the average student's costs, while back in 2012–13, they covered just 30 percent.

That 35 percent translates to $8,390 that the average student receives toward college expenses and does not have to pay back. At more expensive schools, especially those with large endowments, the grants from the institution may be much larger.

Where do those scholarships come from? Most families — 87 percent, the survey says — get one or more scholarships from the college itself. Three out of four students also earn scholarships from companies or community organizations, and 65 percent of students get a scholarship from state or local governments.(See also: How to Increase Your Child's Odds of Winning a Scholarship)

4. Grandma may chip in

Four percent of the average student's college costs are covered by relatives and friends. That may not seem like much, but it works out to $900 for the average student, which isn't nothing.

5. Parents and students share the load

Parents, don't feel like you've failed if you don't cover 100 percent of your kids' college expenses. Students, don't feel like a leech if you can't handle 100 percent of your college costs on your own.

The fact is, in the average family, students and parents each contribute about the same amount to college expenses; 30 percent comes from the student and 31 percent comes from the parent. On each side, that contribution is a combination of savings, earnings, and loans.

6. If you don't feel prepared, you're not alone

Only around four in 10 families say they have a plan to cover all four or more years of undergraduate studies before a student enrolls. Most certainly don't have the entire sum saved up in advance. In fact, between student and parent contributions, only about 34 percent, or $8,000, comes from savings and income. The rest comes from those loans, grants, scholarships, and family gifts mentioned above. (See also: 12 Surprising Ways to Get More College Financial Aid)

7. Most families don't have 529 college savings plans

For better or for worse, use of this tax-advantaged savings vehicle is waning, with only 13 percent of parents of freshmen paying college costs out of a 529 account. Use of these accounts appears to have peaked at 17 percent in the 2012–13 school year.

The lapse in popularity of the 529 program could be chalked up to the lack of planning noted above, or maybe more families are worrying that money they put into 529 plans could count against their kids when they apply for financial aid. However, if you have established a 529 account for your kids, pat yourself on the back, because you're in the virtuous minority. (See also: The 9 Best State 529 College Savings Plans)

8. Smart students find ways to save

Budget-savvy students know that the cost of college doesn't have to be so high if you work at saving money. Half of students are living with their parents; others are renting textbooks or buying them secondhand, living off campus, and bicycling to class.

Budget shopping also comes into play when selecting a college. According to the survey, 69 percent of students eliminated a school due to cost, up from 58 percent in the 2008 survey. This is probably a wise decision. (See also: 10 Ways for College Students to Save Loads of Money)

While past studies indicated that more expensive schools offered a greater return on investment, a more recent study, A Regression Analysis of College Tuition and Mean Income, concluded that's no longer true. Nowadays, once differences in family earnings, race, and test scores are eliminated, there is little difference in earnings between graduates of expensive schools and graduates of more affordable schools. The study suggested that the only variable in colleges that might lead to increased earnings is the expenditure per student, which isn't always highest at the most expensive schools.

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