Lori Meadows
The cost of college and the resulting debt is a significant concern for students and their families in the United States. With the cost of higher education being higher in the US than in most other wealthy countries, many students rely on financial aid to cover their expenses. Parental contributions, including income, savings, and borrowing, constitute the largest share of a student's funding sources, with an average of $11,862 in parental support per year. Scholarships and grants also play a crucial role in financing college, covering an average of $7,500 per student annually. Additionally, federal student aid in the form of grants, work-study programs, and loans is utilized by 71% of college-bound students. While financial aid helps cover 92% of college costs, the rising debt among students has sparked debates about the level of federal involvement and the possibility of student loan debt forgiveness.
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What You'll Learn
Parental contributions
Parental support accounts for the greatest financial contribution to their children's education. Parental income and savings, parental borrowing, and college savings accounts cover over half of students’ educational expenses. During the 2021/2022 school year, the average parent covered about 43% of their student’s college costs using income and savings. Parents covered an additional 8% of that cost by taking out loans, according to the Sallie Mae study. The average total parent contribution came out to $13,000 per year. Excluding college savings plans, $11,900 is roughly how much parents pay for one academic year of their children’s education.
Parents use various methods to fund their children's education. Some use their income and savings, while others borrow money or take out loans. During the 2021-2022 school year, about 37% of families used parent savings and investments outside of college savings plans to boost their student’s college funds. About 18% of families dipped into their retirement funds during the same school year to help cover their child’s education. In the past year, 63% of families used one or more parent’s current income to fund college expenses, according to Sallie Mae. About 18% of families rely on parental borrowing to pay for a college education.
The federal government offers Direct PLUS loans, often called Parent PLUS loans, which are federal student loans that parents can take out on behalf of a child. They tend to have slightly higher interest rates than undergraduate student loans, but they offer many of the same protections, like access to federal deferment and forbearance. Some parents also refinance their own student loans to lower interest rates, freeing up money for their child's college savings.
Long-term, high-yield savings accounts and property mortgages are common strategies parents use to pay for college education. Starting early with even small contributions allows funds to grow over time and reduces the reliance on student loans for future education costs. Qualified tuition programs, also known as QTP and 529 plans, offer savings accounts that allow tax-free withdrawals. The IRS can also arrange penalty-free early withdrawals from an individual retirement account (IRA) for college costs.
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Scholarships and grants
The federal government, for instance, offers need-based Pell Grants, which have an average award amount of $4,255 to $4,569 for undergraduates. Pell Grants are the most widely used form of federal scholarship assistance, with the majority of recipients coming from families with incomes between $20,000 and $60,000. In addition to Pell Grants, the Federal Supplemental Educational Opportunity Grant (FSEOG) provides scholarship aid ranging from $100 to $4,000. Federal grants are more commonly awarded to students attending private, for-profit colleges, with 67.2% of undergraduates at these institutions receiving this type of aid.
State and local governments also play a significant role in providing scholarships and grants. On average, undergraduates receive $4,116 from state and local aid. New Mexico leads the nation in financial aid spending per student, allocating $2,349 for each fall enrollee. Conversely, New Hampshire has the lowest expenditure per student, at $18.07.
Private organisations are another important source of scholarship funding. For instance, the Coca-Cola Scholars Foundation offers scholarships of up to $20,000. Private sources collectively award over $8.2 billion in scholarship funds annually, a significant increase from the estimated $3.3 billion awarded in 2003.
The impact of scholarships and grants is substantial, with students receiving an average of $7,500 per year in academic costs covered by these awards. First-time undergraduates at four-year colleges receive approximately $13,690 per year in government grants and scholarships. Additionally, scholarships from private nonprofit schools average $5,800, compared to $2,100 from public schools and $1,500 from private for-profit schools.
The likelihood of receiving a scholarship or grant can vary based on several factors, including the type of institution, chosen degree, and family income. According to the National Center for Education Statistics, African-American students have the highest probability of receiving grants at 88%. The college majors attracting the highest percentages of federal grant money are health (18.4%), humanities (16.3%), and business/management (15.9%).
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Student loans
The cost of college in the US has been steadily increasing over the years, leading to a greater reliance on student loans and other financial aid options. Tuition costs at public four-year colleges have more than doubled in the last three decades, while costs at private nonprofit institutions have nearly doubled. As a result, more than half of students graduate with debt, and the average college student borrows around $29,400 to $30,000 in loans to obtain their degree.
Student loan debt is particularly prevalent among young adults, with borrowers between the ages of 25 and 34 carrying approximately $500 billion in federal student loans. However, student loan debt extends beyond young adulthood, with borrowers aged 35 to 49 owing over $620 billion. Notably, 2.4 million borrowers aged 62 or older still carry student loan debt, amounting to $98 billion.
The Biden administration has addressed the growing student debt crisis by introducing several student debt forgiveness plans, although its most far-reaching proposal was struck down by the Supreme Court. During the COVID-19 pandemic, the Trump and Biden administrations provided temporary relief by pausing federal student loan payments, but millions of borrowers will need to resume payments in 2023.
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Work-study programs
The Federal Work-Study Program (FWS) is a form of financial aid that provides on- and off-campus jobs for college students with financial needs. The program was established 55 years ago as a part of the Economic Opportunity Act of 1964. It aims to assist students in earning money to meet their educational costs and provide work experience related to their chosen academic major or career field. The FWS provides funds directly to institutions to administer campus-based work-study, covering up to 75% of student wages. The average annual work-study award is $1,980, and 5% of undergraduates participate in work-study programs.
Work-study jobs are typically part-time, and students are limited to working around 20 hours a week. The jobs are intended to provide students with valuable work experience and a source of income to cover their day-to-day expenses. The earnings from work-study jobs are not included in the total income calculation for financial aid offers, and they won't impact future student aid. Undergraduate students are paid by the hour, with a minimum wage of $7.25 per hour, although individual schools may set higher wages.
To apply for the Federal Work-Study Program, students must submit the Free Application for Federal Student Aid (FAFSA) form before the deadline for the next academic year, usually around the end of June. It's important to note that jobs are limited, and work-study funding and jobs are not guaranteed each year. Additionally, eligibility for the program is dependent on financial need. While the work-study program provides valuable support, it has faced criticism for the inequitable distribution of funds, with high-cost private schools and well-known public institutions receiving a larger share compared to community colleges.
Work-study funds can be used for day-to-day expenses, and some schools allow students to apply these funds directly to their accounts for billed expenses such as tuition, fees, and food and housing. Students receive their work-study funds through regular paychecks, with payments made at least once a month, although some schools may pay weekly or biweekly. It's worth noting that work-study earnings do not count as part of a student's total income when calculating financial aid offers for the following year.
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Federal and state grants
The federal government provides need-based grants, such as the Pell Grants established in 1972, which do not require repayment. In 2025, projections for federal grant disbursements totalled $40.651 billion, with the federal government awarding grants to 56% of first-time, full-time undergraduate students nationwide. Additionally, the federal government is more likely to grant funds to students attending private, for-profit colleges, with 67.2% of undergraduates at these institutions receiving federal grants. The Federal Work-Study Program (FWS) is another avenue for students to receive financial aid, providing funds directly to institutions to administer campus-based work-study programs, covering up to 75% of student wages.
State governments also play a significant role in providing financial aid through grants and scholarships. Between 2012-13 and 2022-23, the average state grant aid per full-time undergraduate student increased from $870 to $1,180. In the 2022-23 academic year, this aid ranged from under $200 in seven states to over $2,000 in eight states, with New Mexico spending the most on financial aid per student at $2,349 per enrollee, and New Hampshire spending the least at $18.07. Overall, 33.2% of undergraduates receive financial aid in the form of state or local grants and scholarships, with the average undergraduate receiving $4,116 from this aid.
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Frequently asked questions
Parental support is the greatest source of funding for students in college. Parents contribute around $11,862 on average per year.
56% of first-time, full-time undergraduate students receive federal grants.
Scholarships cover around $7,500 of annual costs per student. 3 in 4 students say scholarships made college possible.
New Mexico spends the most on financial aid per student, at $2,349 per fall enrollee.
35% of Midwestern students are responsible for the entire cost of their education.
