Report Finds Scholarships, Grants Are Largest Source for Family College Spending The "new normal" of college includes a reliance on scholarships, grants.

July 23, 2013  -- Average spending on college for the recent academic year leveled out to $21,178, as the use of college saving plans increased to its highest level ever, according to an annual report by Sallie Mae (NASDAQ: SLM), a financial services company specializing in education.

The report, called "How America Pays for College 2013" and released on Tuesday, found average college spending declined since 2010, when families paid a peak of $24,097. Like last year, the report is based on survey results of about 800 undergraduate students ages 18 to 24 and parents of undergraduates.

Since Sallie Mae released its first report six years ago, families have spent more on college, but with the recession, families became more cost-conscious, said Sarah Ducich, senior vice president for public policy at Sallie Mae.

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While tuition has risen, the amount families spend has leveled off because of the choices they are making, she said.

For example, for the 2012-13 academic year, one-fifth of parents increased work hours or earnings to help pay for college in 2013, down from 24 percent in 2012. Forty-seven percent of students increased their work hours in 2013, and 27 percent chose to accelerate their course work to spend fewer semesters earning a degree, in an effort to spend less on college overall.

For the recent academic year, 52 percent of families eliminated certain schools from their selection decision because of how expensive they are, the highest percentage Sallie Mae has seen.

The typical family uses six sources of funds to pay for college, says Sallie Mae. For the recent academic year, the average family depended the most on grants and scholarships, which paid for 30 percent of college costs.

The following list comprises the whole pie of the average percent of total cost paid from each source:

1. Grants and Scholarships: 30 percent

2. Parent Income and Savings: 27 percent

3. Student Borrowing: 18 percent

4. Student Income and Savings: 11 percent

5. Parent Borrowing: 9 percent

6. Relatives and Friends: 5 percent

It's not just low- and middle-income families making choices to cut costs. Overall, 57 percent of the survey respondents said a college student is choosing to live at home to cut housing costs, up from 51 percent last year.

"I think it's been striking more than half of low income families and close to middle income families live at home. It's just one of the ways you save money to go to college," said Ducich.

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But this year, a striking 50 percent of high household incomes of $100,000 and above said a college student was living at home, a jump from one in four college students in that household income range who lived at home four years ago.

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Parents are willing to stretch their budgets and limits as much as they always have, but stagnant income levels have solidified their upper limits, said Cliff Young, managing director of polling at Ipsos and a co-author of the study.

"Generally, before the recession, families could take risks like using home equity," he said. "Post-recession, a family stretches to keep kids in school and over the course of the last three years, there have been decreases in how much parents have been spending."

Ducich said because parents are "taking control" of their college investment choices, they are reporting that they are less worried about rising cost of tuition and other college-related expenses.

When asked if parents reflected worry over the increase in federal student loan interest rates, Ducich said parents are focused on the overall cost, and not just rates.

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But while students and families are not obligated to pay back federal student loans until after they leave school, Ducich encourages families to begin paying back while students are in school if they can.

Twenty-two percent of families report they are paying student loans while they are in school to reduce the cost, according to the Sallie Mae survey.

The biggest amounts of borrowing occur in unsubsidized Stafford student loans and Graduate PLUS federal student aid, Ducich said.

"When you defer your payments in school, all you are doing is borrowing more," she said. "Paying early to reduce cost of borrowing is a really good strategy."