How the Typical Family Pays for College

The Wall Street Journal gives a three-year countdown for college saving as follows:

Three Years Out: While you've hopefully been setting money aside since your teen was a baby, this is the time to get your college savings on the fast track.

Two Years Out: Continue funding your 529 and other savings accounts, upping the amount if possible. This also is the time to start taking a serious look at potential schools -- and estimating the cost of each.

One Year Out: By this point, you should have the bulk of your money in less-risky investments, such as money-market funds, CDs and Treasurys, since you won't have much time to recoup any losses. Mr. Kantrowitz says no more than 20% of college savings should be in at-risk investments when your child is this close to college.

Really? A three-year plan? What about a ten-year plan? Wouldn't that make life a whole lot easier? Ugh.

What really interested me in this article though (since the three-year stuff was mostly a waste) was the pie chart detailing how the typical family generally pays for college. It is as follows:

• 33% Grants and scholarships
• 30% Parent income and savings
• 15% Student borrowing
• 11% Student income and savings
• 7% Parent borrowing
• 4% Friends and relatives

Our plan is to get 100% from friends and relatives. Anyone want to donate as a "friend"? ;-)

Seriously, here's what we are planning on doing:

• Grants and scholarships -- If our kids get one/some, this would be great, but we're not counting on them.


• Parent income and savings -- This is where we'll get the vast majority of the college funds for our kids.


• Student borrowing -- Not going to do this unless it's an extreme case (like they insist on going to a school that's $50k per year.)


• Student income and savings -- Yes, we'll expect our kids to work and help pay for their own educations.


• Parent borrowing -- Nope, not gonna happen.


• Friends and relatives -- Again, not gonna happen.

Here are some additional thoughts:

• We've talked to our kids about what we will provide and won't provide for their college costs (for details, see Determine a College Budget), and they see the vision: if they can help pay for their college themselves through work, scholarships, etc., they'll get a good amount of money from us that can be used for a car, house downpayment, etc.


• One of our kids (an over-achiever) is already working to pass the CLEP test for Spanish (even though she's in 8th grade.) She has a tutor and is planning/hoping to pass the test sometime next spring/summer/fall. The motivation? I promised I'd buy her an iPad if she did. :-) Throughout the course of high school, we're hopeful that she can get 15-20 college credits through a combination of CLEP and AP/college classes.


• Our kids' course through college should leave them graduating with little debt, especially if they keep costs low and work to supplement what we've saved. I can see the situation playing out in something similar to this.

How about you? Anyone else working on college savings/plans for your kids?

Comments

[JT]

Does typical mean average, or median, or what? The large size of the parent's contribution and relatively small contribution by the student leads me to believe it's an average.

[Matt]

Just starting this process of actually redeaming what I started 18 years ago. Yes when they were born I started. We have some money in 529, some in saving , some money they have saved and we are still saving.

Financial need they will get no grant money. We tried. Student loans will discourage but come the third year when both are in it may require some loans but I am hoping not.

All a matter of the economy, job, saving for retirement and other things to make sure we will not get into debt with this college adventure.

[Rich Schmidt]

I was fortunate to have a big chunk of my college paid for by "friends and relatives." My grandparents started giving all of us grandkids money for college every Christmas from the time we were young. As we got older (and my grandparents were trying to give away more of their assets), those Christmas gifts got larger. I got some pretty substantial scholarships & grants, so some of that college money also paid for grad school and a car... I think. That was a long time ago! And I wasn't paying as much attention to money back then!

[Lynn]

@FMF, your daughter is working hard to earn college credit early and it will definitely pay off. I did the same thing, and I went a step further. A good private university (and a public one) within driving distance of my house offered early acceptance programs. Which allowed high school students to take classes tuition free. My senior year in high school, I took 1 or 2 classes in the morning (I transferred from another state and there were 2 classes I was required to take, and they refused to waive), went home for lunch, then drove 30-40 minutes to the private university. I LOVED it. My classes were interesting, and when I matriculated the following year I had lots of friends on campus. I ended up finishing my primary degree in 3 years (no summer classes, summer internships & networking instead). But as I got close to the end of my 3rd year I realized I had a fellowship that would support 4 years of study and I was only 4 classes away from turning my 2nd minor into a major. I decided to stay in school the extra year and finish with 2 degrees-no cost to me.

My experiences is that these programs are not widely advertised. But they're not really that uncommon either.

[jim]

When you read the 'grants and scholarships' is 33% then you might wander to the word scholarships there and conclude that kids get 1/3 of their college money from scholarships. But I doubt much of that is merit based scholarships and I'm assuming its mostly financial aid based on need.

The 'grants and scholarships' category would include need based aid and I'm sure MOST of that money is need based aid. I'd guess around 70% or more of the total is need based. Pell grants from the federal govt. alone are 18% of ALL student aid.

The grants can come from the federal government, the state, the college, private groups, etc. so its spread around from various sources.

[fka CPA Abroad]

I have to agree with Lynn here, but from a controlling your own destiny perspective. I took several AP classes at a very well respected public high school but no matter your grade in the class you have to get a satisfactory score on an AP test in order to get college credit which is only fair. However, when your teachers are more concerned with teaching how they want to teach vs. helping prepare you for the test it does not always work out well. So the point here is that by going Lynn's route you control your destiny, whereas by going the AP route the high school teacher, to a certain extent, controls your destiny. I will definitely encourage my kids to take college classes their senior year of high school.

One other point, but from a value perspective. Your first year of college usually consists of the entry level/mandatory courses that do not have much affect on your future career so I do not feel they create as much value to the student anyway. Why pay for the "less valuable" courses?

[KH]

Another perspective on AP courses, from a medical school:

Accumulating tons of AP credits before college may mean you may be able to graduate from college more quickly (and for less money). But if your aspirations are to attend a professional school such as medical school after college, don't count on getting in after only 3 years of college even if you have enough credits. Maturity issues can prevent you from getting accepted into a program such as medical school after only 3 years of college (you're considered "too young"), and in addition, an outstanding student is actually expected to utilize that 4th year of college to study abroad and take additional classes to obtain a second major. So while AP credits are encouraged, don't use your AP credits to cut your college experience short if you are aiming at a competitive graduate school program.

[Lynn]

CORRECTION: I did not do an "early acceptance program" it was actually called "early enrollment"- I was able to attend for free while I was in high school, with absolutely NO OBLIGATION to attend that university. In fact applied to and was accepted by several other universities, but remained at the same private university due to the fact that they were #1 in my field AND offered the best financial aid package.

In early acceptance programs, high school students typically apply early in their senior year (September or October). Early acceptance allows you to know whether or not you were accepted much earlier (usually late Fall instead of Spring) and you ARE OBLIGATED to attend the university that accepted you.

[Travis]

I was on the other end of the spectrum.

I received a athletic scholarship for my first two years of school but was not mature enough to handle living as an adult. The years were squandered and I thankfully so the error in my ways, and made a change.

I transferred to a high academic private school, which I was enrolled solely based on the wrong criteria (athletics). But somehow, I flourished (but now flounder in debt).

My parents contributed what they could. FAFSA didn't have much for me. But I took loans for the rest. Now an elementary school teacher, I have $60k of debt and am living like a hermit to pay for it.

Oh the routes we take...

[Travis_D]

One of the best ways to fund college is through MILITARY SERVICE (full disclosure - yes, I am an Army recruiter). This can be done one of two ways; one can enter military service either before or after attending college. A high school senior could enlist into the service, serve three or four years active duty and then get their entire college education paid for (at most universities) via the Post 9/11 GI Bill http://www.gibill.va.gov/benefits/post_911_gibill/index.html and even receive a monthly stipend while attending college!

OR if a student wants to attend a university first and enter the service as an officer, one of several military academies like West Point or the Air Force or Naval Academy (or even the Coast Guard Academy) are great institutions and a way to make that happen. Did I mention West Point is FREE if you can get in!!! If a high school student would rather have a "typical" college experience though, they can attend ROTC (Reserve Officer Training Corps) at one of over 273 host universities or one of the thousand or so partnership programs, graduate college, and serve four or more years on active duty as an officer or serve eight years in the Reserves or National Guard. If a high school senior is qualified they can apply for an Army ROTC scholarship here: http://www.goarmy.com/rotc/high-school-students/four-year-scholarship.html and as long as the HS senior starts the application before the end of 2011 they have a shot at getting a 4-year scholarship. Some private universities like Pacific Lutheran University www.plu.edu or Gonzaga University www.gonzaga.edu also kick in free room and board for Army ROTC scholarship students too! Find out if the university you are interested in has an Army ROTC program at http://www.goarmy.com/rotc/find-schools.html and good luck!

Feel free to email me directly with questions at [email protected] if you have questions and ensure to mention you heard about ROTC on the FMF website!

[EM]

Just a note on grants and scholarships for those who also qualify for financial aid...

My understanding is that if a student receives a scholarship from an outside source (e.g. an organization like the Rotary or whatever), there are colleges that will REDUCE the amount of grant aid that THEY award by that amount. I don't know how widespread this is, but I really dislike this idea.

I think the scholarship money should benefit the student who got the good grades, did the community service and spent time on all those extracurricular activities -- not lessen the amount the college had already been prepared to give in the first place. Especially in the case of students who demonstrate financial need.

[Crystal Olivarria]

I was fortunate and was able to get over $70,000.00 from educational grants and scholarships to pay for my college education. I learned by trial and error. I think many people don't rely on scholarships to pay for much of their education because they look at it more like gambling. They are not sure how much they will get; it is a nice wild card to have. That is why I am developing an online course to teach people what I know.

[[email protected]]

Our kids (3 of them) are young and upon their arrival into this world I immediately opened up a minor savings account for each of them. As they receive gifts of cash for birthdays and Christmas, we deposit those funds into the savings accounts. It works now why they are young but it may be hard to convince them of this concept as they get older.

As the savings funds grow, I anticipate that we may roll a portion of them over into 529 college savings plans to help bolster some additional growth.

One other thing that I have going for us is that I work at a college that will cover the tuition expenses for my children when they head off to college. This is a HUGE benefit and it is greatly appreciated.

The 529 will help to cover Room & Board charges as well as any other miscellaneous fees including textbooks..