A new study has shown that American parents are now spending less on their children’s college tuition. It is not known what exactly is causing this drop in parental spending, but the study sheds light on several factors that could have played a part in it.
According to a new study by Sallie Mae, her 10th annual “How America Pays for College” report, US parents are now spending less on their children’s college tuition during the 2016/2017 academic year. According to the report, the “out-of-pocket” parental spending dropped from 29 percent to 23 percent of the income of a typical US household. This roughly calculates to be about $5,527 out of an annual salary of $23,757.
According to the study, this is the lowest amount spent by a parent since 2009. It is also the “lowest percentage of the total tuition spent” since the beginning of the study.
Why The Drop?
It remains unclear what exactly caused this drop of parental spending on college tuition, but there are several factors that may have played into it. For example, this could have been because there has been a large increase in the number of students relying on student loans rather than their parents’ money for college. This rose from 13 percent to 19 percent during that time.
Around 1 percent of parents use “home equity loans” or “retirement plan loans,” and 3 percent charge tuition on their credit cards. Some also use “federal PLUS loans,” as well as private loans.
“I heavily discourage 401(k) loans. I also discourage pulling money out of Roth IRAs.” said Jason Lina, a Atlanta-based financial adviser. “But credit card debt is the worst.”
Some experts have also suggested that it could be because of “price sensitivity.”
Mark Kantrowitz, the Cappex.com publisher and a resource for college financing, said: “Parents may be telling students, if you want to go to that more expensive school, you’ll have to pay for it.”
Therese Nicklas, a financial adviser, said: “I told my kids, if you go over, you’ll have to borrow.”
Many have also said that the fact that tuition costs have risen drastically since 2009, conditions aren’t exactly comparable.
“Two decades ago, college costs could be more related to buying a car. Now these costs are like buying a house. It’s two completely different scenarios,” said Melissa Sotudeh, a financial adviser based in Washington, D.C.