October 18, 2006

Parents’ Misperceptions About Financial Aid, College Savings, and Debt

Posted in Student Loan News at 9:34 AM by Joe From Boston


There was a very interesting article on the NAFSAA website that I found last night. I’m copying the whole article here as it’s an article EVERY parent should read:

“Most parents have misperceptions about the amount of financial aid their children will receive, but have a relatively good idea about the cost of college, according to a recent survey published by AllianceBernstein Investments. The survey, Failing Grades? American Families and Their College Saving Efforts, found that 95% of all parents intend to pay at least some of their children’s college expenses and feel that helping with those expenses would be the best investment they could make in their child’s future. However, when asked to rate themselves on being financially prepared to pay for their children’s college educations, 34% gave themselves a grade of “D” or worse.

Of the 1,358 parents surveyed, only 27% felt they were very likely to reach their college savings goal. The study suggests there is a lack of urgency partly because 84% of parents felt that there were lots of scholarships that will help them pay for some of their child’s higher education costs. Meanwhile, almost all of the 200 financial aid administrators (FAAs) surveyed thought that parents “have a false sense of security that colleges will help them cover education costs.”

“It’s important to remember that financial aid is meant to be a last resort, not a way for mitigate college costs,” said Dallas Martin, president of NASFAA.

The reality is much different than most parents’ perception, according to the survey. Two-thirds of aid administrators surveyed said the current system does not meet the needs of many students and their families. Nearly 75% said that less than half of those who apply for aid are financially able to meet their expected family contribution, and 61% said they thought it would be a major financial hardship for the average family applying for aid to meet their EFC.

“The discouraging reality is that college costs have skyrocketed and federal financial aid has eroded,” Martin said. “The result is that the doors of educational opportunity have closed for many of our nation’s youth because they cannot afford to attend college. It’s critical for parents to have more realistic expectations for financial aid and adjust their savings efforts accordingly.”

An overwhelming 97% of all FAAs surveyed felt that families have become more reliant on financial aid in recent years and 99% said that even wealthier families are looking for ways to reduce or avoid college costs.

“With college costs at an all-time high, parents are more likely to limit how much they are willing to spend on higher education expenses,” Martin said. “As a result, many young adults are picking up more of the tab for their undergraduate educations, and accumulating heavy debt burdens in the process.”

The survey found that parents’ believed that graduating without debt was an advantage, but 63% saw student debt as a “fact of life.” However, 57% of the administrators surveyed said they would not let their own children take out the average loan amounts borrowed by today’s college students.

Aid administrators also saw the amount of borrowing as a potential problem. Nearly 95% of administrators expressed concern about the amount students were borrowing and nearly all said that they expect borrowing to continue to increase in the next decade.”

The entire Alliance Bernstein report is available online.

By Justin Draeger
NASFAA Assistant Director for Communications

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