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The Surprising Way Americans Pay for College

With the fall semester preparing to kick off for the millions of college students across America, the cost of college will once again be on the minds of many. But exactly how Americans pay for college may surprise you.

The not-so-rising costs

Sallie Mae, the largest private student loan issuer, recently released its latest study entitled, How America Pays for College. It was full of insightful pieces of information, but one of the most surprising bits was that the average amount a family pays for college has actually fallen by nearly 15% since 2010: 

Source: Sallie Mae, How America Pays for College.

As you can see, one of the biggest benefits of the average amount falling has been the fact parents have reduced the total amount they pay -- whether through their own income, saving, or borrowing. In total, the amount paid by parents has fallen by almost 30% since 2010, saving them $3,200 a year.

The big surprise

But if you're anything like me, the biggest surprise is the wide diversity of funding students and families rely on to obtain a degree. Shown a little differently, you can see the variety of sources -- whether out of pocket money, borrowing resources, or receiving grants and scholarships -- trusted to help pay for college:

Funding Source Share

So often when we hear of college and the rising costs, we think our economy is preparing to be crippled as a result. After all, BusinessWeek ran its article in January that asked: Student Loans, the Next Big Threat to the U.S. Economy?

But as the chart shows above, borrowing represents just a fraction of how Americans actually pay for college. And this is to say nothing of things like College Board revealing the rise in the published tuition and fees is far greater than the net tuition increases, which factors in those growing grants and scholarships:

Source: College Board.

Despite all of the media attention dedicated to it, the fact remains colleges and universities across the country are doing more than meets the eye when it comes to ensuring students aren't burdened by enormous debt loads.

Of course there are some colleges -- particularly those for-profit ones -- with questionable practices. Yet by and large, we have also seen how beneficial a college diploma is. A recent study by the Pew Research Center titled "The Rising Cost of Not Going to College" found someone with a high school degree in the 1960s could expect to earn 80% of what a someone with college degree made ($31,300 verus $38,800). But for those in the Millenials generation, that gap has widened to 60%. As a high school graduate is only expected to make $28,000, whereas a college graduate on average earns $45,500. 

All of this is to say, although tuition may be rising slightly, the surprise is, Americans aren't being forced to take on drastically higher levels of debt to pay for it.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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