Sallie Mae study shows poor college financing

By Paula Burkes

Published: August 24, 2008

College students and their parents aren't very smart when it comes to saving and paying for their education, according to a study released this week by Sallie Mae.

The study found too few families are focused on total costs or have college savings plans like tax-advantage 529 plans. Meanwhile, too many students fail to complete forms for low-cost student loans, and are borrowing without thinking about whether their future income is enough to repay loans. Conducted by Gallup, the study was based on telephone interviews in May with 720 parents and 684 undergraduates enrolled in the 2007-08 academic year.

"Paying for college is becoming one of the major costs across a lifetime,” said Tom Joyce, senior vice president of Sallie Mae, on a conference call for media Wednesday. According to the study, the average cost of college for last year alone was $14,628, ranging from $27,679 for four-year private institutions to $5,263 for two-year public schools.

"We need to get families away from a semester-by-semester fire drill in terms of how they pay,” Joyce said.

Rather than 529 plans, which only 9 percent of families used, parents' current income was the leading payment source last school year, with 38 percent of all families spending an average of $5,815. Upon graduation, Oklahoma students on average owe $17,250, according to the latest data available. Families, Joyce said, cannot expect to pay for college solely with scholarship and grant money, which covered only 15 percent of costs, the study found. "Particularly with today's economy, they must make well-informed decisions, including exhausting lower-cost federal loans, before considering private loans and other sources.”

Joyce said he was shocked to learn nearly one-fourth of middle-income families, or those earning $50,000 to $100,000 annually, failed to complete the Free Application for Federal Student Aid (FAFSA) form, which is the basis for awarding all federal grants and lower-cost federal loans. Meanwhile, the study showed middle-income families tend to borrow more to afford higher-cost institutions, and of all families, 70 percent were borrowing without considering post-graduate income.

Parents on average paid nearly half of college costs and students, one-third. Of what they contributed, parents borrowed 16 percent and students, 23 percent. Students were the sole borrowers in two-thirds of the 47 percent of families who borrowed.

Among other things, students should limit borrowing and be leery of higher-interest private loans, said Rick Edington, director for school/lender services for the Oklahoma Guaranteed Student Loan Program.

Schools that accept students will state the maximum financial aid available in their award letters, Edington said. But students don't have to borrow the full amount, he said. Meanwhile, Edington advises students to avoid higher-interest private loans, though late-night TV commercials for them boast no FAFSA applications and 48-hour decisions.

Even Chase, a lender of private loans, urges students first to exhaust free or lower-cost resources, spokesman Tom Kelly said.

"Because of the credit crunch, we — like a lot of lenders — have higher standards,” Kelly said.

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