If you’re a parent, you’ve likely already begun to worry about how you’re going to pay for your kid’s college tuition. But what percentage of parents pay for college? It may be less than you expect. Learn more, and tips for helping to afford college.
What Percent of Parents Pay for Their Children’s College Education?
About half of families (53%) have a plan to pay for college, and of those, 61% say borrowing will likely be part of how they help their child afford higher education, according to Sallie Mae’s How America Pays for College 2023.
But the reality is, even a percentage of the total college bill can be tough for most families to pay. How much exactly should parents be saving? Average yearly tuition, fees, and living expenses per student, per year, currently rings in at $38,270, according to the Education Data Initiative. (As you might guess, private colleges can be significantly more expensive than in-state public universities.)
To put it another way, the typical family plans to contribute to the total college cost of almost $160,000 for four years, meaning they could aim to save tens of thousands of dollars to help their kiddos with college.
💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
What Student Loans Are Available to Parents?
Parents considering borrowing a student loan to pay for their child’s education can choose between a federal Parent PLUS Loan, or explore options available at private lenders.
According to the same Sallie Mae survey, parents’ income and savings account for nearly 50% of college costs. Other sources of funding include scholarships, grants, or student loans borrowed by the student. Parents can also borrow a loan to help their students pay for college. Approximately 41% of families report borrowing to help fund their child’s education.
Recommended: The Differences Between Grants, Scholarships, and Loans
Parent PLUS Loans
Parent PLUS Loans, as mentioned, are a type of federal student loan available for parents of dependent undergraduate students.
To apply, parents or their students must first fill out the Free Application for Federal Student Aid (FAFSA®). Then, the parent can apply for the PLUS Loan directly on the federal aid website. There will be a credit check to review any adverse credit history, but approval typically won’t be dependent on factors like the applicant’s credit score or debt-to-income ratio.
Parent PLUS Loans have a fixed interest rate that is set annually by Congress. For loans disbursed between July 1, 2024 and July 1, 2025, the rate is 9.08%.
Direct PLUS Loans carry an origination fee. For the 2024-25 school year, the origination fee is 4.228%.
Private Parent Loans
Private loans for parents are available from private financial institutions including banks and credit unions. These lenders generally review factors like the applicant’s credit score, income, and those for any cosigner. Private lenders determine their own interest rates, terms, and repayment plans.
Compare annual percentage rates among lenders to help you decide whether a fixed or variable interest rate would be best for your financial situation. Some private lenders charge an origination fee, while others do not.
Saving for Future College Costs
It can seem insurmountable to even think about saving in the range of $40,000 for each year for college costs on top of all your other financial responsibilities. One recommendation is to pay off your own student loans before putting significant amounts of money into college savings. Some parents find that refinancing their own student loans if they haven’t yet paid them off may allow them to save money — giving them more financial wiggle room to start saving up for future educational expenses.
How can refinancing help you save on your student loans so you can start saving for your kids’ education? Student loan refinancing allows you to trade in all your student loans for one new loan with a potentially lower interest rate and more favorable repayment terms.
But refinancing your student loans has, like many things in life, both pros and cons. Consider if the benefits outweigh any potential negatives. For example, you may be able to secure a more competitive interest rate and lower your monthly costs. However, refinancing federal loans will eliminate access to borrower protections or benefits. So, if you are using one of these benefits — such as pursuing Public Service Loan Forgiveness — refinancing may not make sense.
In addition, if you refinance for a longer term, you may well pay more interest over the life of the loan, which is why you should read up on the topic with student loan refinancing guides and other resources.
When you refinance your student loans, the lender looks at your current financial situation, including your credit score, income, and future earning potential (among other factors) to calculate an interest rate that could potentially be lower than what you might be paying to the federal government or a private student loan lender.
Refinancing Options
If you are interested in refinancing student loans with bad credit, know that it may be more challenging to secure a competitive interest rate. It’s possible to find a lender and refinanced loans that meet your needs, but you may need to shop around. Be patient as you go through the process.
You might also consider adding a cosigner to your application. A student loan cosigner is someone who agrees to take on responsibility for the loan if you, the primary borrower, is unable to make payments in the future.
If you’re unable to add a cosigner or just want to focus on refinancing without a cosigner, you might want to take some time to focus on building your credit. A few tips on building credit include making monthly payments on-time, keeping your debt-to-income ratio low, and checking your credit report regularly to remove any errors.
On top of potentially saving on interest rates, refinancing your student loans can consolidate multiple student loan payments into one monthly payment. This can simplify your money management and bill paying.
Furthermore, if you’re able to shorten your loan term through student loan refinancing, you could pay off your student loans even faster, further reducing the amount of interest you’d pay over the course of your loan. Those savings can be converted into savings for your child’s future education — hopefully saving them from having to take out too many student loans themselves.
Recommended: Student Loan Refinancing Calculator
Tips for Saving for College
There are a few options to help parents maximize their savings. In fact, one of the main benefits of saving up for college while your child is still fairly little is that you have time on your side.
• If you can sock away even small amounts of money over time, depending on where you put it, you give that money a chance to earn interest or dividends over time — and potentially increase the amount you’ll have to put toward your child’s tuition payments.
• Once you’ve decided to start saving up a college fund, you’ll have to choose where exactly you want to save that money. While some parents choose to set aside cash in a regular savings account, the relatively low interest rates on most standard savings accounts mean that your money may not grow as much as you’d like over time. A high-yield savings account with compound interest can help your funds grow.
• Many parents consider a government-sponsored savings program in order to net some serious tax benefits, or even to start investing in order to grow money over time.
• When it comes to government savings plans, you can choose from a 529 college savings plan, which offers generous tax benefits, or a Coverdell Education Savings Account, which allows you to invest in stocks and bonds to cover educational expenses.
The Takeaway
Most parents plan to contribute to their child’s college costs. Starting to save today can help you save as much as possible for future educational expenses. If you have your own student loans from your college days, one option to create some wiggle room in your budget is to refinance those loans to a lower interest rate.
If you are considering refinancing as one strategy to help you save more for your child’s college fund, take a look at what SoFi offers.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
How many families fill out the FAFSA?
In the most recent year studied, about 70% of families reported completing the FAFSA.
What percent of parents borrow money to help pay for college?
According to the most recent Sallie Mae data, 61% of families say they will borrow to help pay for a child’s college expenses.
What are the pros and cons of refinancing student loans?
On the plus side, refinancing student loans could yield a more competitive rate and lower monthly payments. That could potentially lower your costs. However, when you refinance federal student loans, you lose federal protections, such as forbearance, and, if you refinance for a longer term, you could wind up paying more interest over the life of the loan.
We’ve Got You Covered
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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