More Families Borrowing for College but Frustrated by FAFSA

A new study says more students and their families are taking out loans to pay for college, yet confusion reigns over the financial aid process.

Some parents even admit they have no idea why they’re completing the FAFSA form.

And very few are happy with the “new and improved” FAFSA, the most recent source of headaches for today’s borrowers.

This new report, “How America Pays for College 2024,” contains survey results from 1,000 parents of traditional-age undergraduates and from 1,000 undergraduate students. It also features a special section on historically Black colleges and universities (HBCUs), reflecting the input of 349 HBCU undergraduates ages 18-24.

The research was conducted in April and May this year.

Overall, it found that families spent $28,409 on college in academic year 2023-24, a 1% increase over the previous year.

Just under half of undergraduate families (49%) took out loans to pay for college, up from 41% two years ago. But those loans covered only 23% of costs. Family contributions from income and savings covered almost half (48%) of college expenses.

Among those families that contributed parental income and savings, the average amount was $14,282.

Other significant sources included scholarships (15%), grants (12%), and funds from relatives and friends (2%). Everyone should have a generous aunt.

Parental contributions have been declining, however, while a reliance on borrowing has increased. The portion of funding from parents has declined from 45% to 37% over three years, while the amount covered by loans has increased from 20% to 23%.

Nearly two-thirds of families (64%) used scholarships to pay for college in 2023-24, receiving an average of $8,250, and 60% relied on grants, which supplied another $5,361 on average.

The sources of these funds aren’t exactly clear, however. Both scholarships and grants can come from universities themselves or from outside sources such as federal and state governments, companies, and private organizations.

Typically, scholarships are awarded based on some sort of merit, while grants are based on financial need. Yet the scholarships and grants universities bundle in financial aid packages often constitute a semantic form of tuition discounting.

Although the study found that 87% of families believe earning a scholarship is “something to be proud of,” it may have little to do with merit whatsoever. Incentivizing students to attend through “scholarships” constitutes a key element of the enrollment management game.

Still, the more troubling aspect of the study’s findings is that half of the families surveyed didn’t know scholarships or grants were even available. Some who were aware didn’t apply because it required too much effort, because they believed scholarships were reserved for top students, or because they assumed their income was too high.

A similar phenomenon occurred with the Free Application for Federal Student Aid, or FAFSA. One-quarter of families said they didn’t submit the FAFSA, and a third of the non-submitters believed they made too much money. How much is “too much”? A quarter of that population made less than $100,000.

Clearly, there’s plenty of confusion when it comes to applying for financial aid and student loans. The study estimates that nearly $100 million in scholarship aid goes unclaimed each year because people fail to apply.

Compounding this confusion was the frustration felt by families over the fall 2024 bungled FAFSA launch, which caused universities to delay issuing financial aid awards and, in some cases, dissuaded students from attending college.

Only 29% of families found the “simplified” FAFSA easier to complete, and almost half (47%) said their financial aid awards were delayed. As a result, 11% of students considered leaving school at least temporarily.

The good news is that 74% of families said they submitted the FAFSA for the 2023-24 school year, up from 68% for 2020-21. Almost 90% of them believe it’s a good investment in their child’s future, and 79% said it’s worth the financial sacrifice — a positive sign amid numerous reports claiming that Americans continue to lose faith in higher education.

Even so, 46% said their student considered alternative paths, up from 38% the year before. That includes trade schools, career training programs, and apprenticeships.

Speaking of alternatives, 23% of students and 18% of parents reported using new artificial intelligence (AI) tools such as ChatGPT to research colleges (36%), write personal statements (28%) and scholarship essays (26%), and decide where to attend (30%).

Students at HBCUs shared a similar optimism about higher education’s return on investment, saying that a degree will open doors to opportunity (88%) and increase future earnings (81%).

Yet while 84% of families in the overall survey feel confident in their decisions about paying for college, only 73% of HBCU families said they were.

Even though more HBCU students received grants and scholarships compared to the overall pool (88% vs. 80%) and received more money ($14,217 vs. $9,427), they also relied more on student borrowing (43% vs. 30%). Parental borrowing, largely through PLUS loans, resulted in amounts 20% higher than families overall.

In fact, the average PLUS loan balance for HBCU parents was $14,207, while the corresponding figure for the overall pool was $5,795.

Perhaps it’s not surprising, then, that 42% of HBCU students said they’re paying too much for college, and only 24% believe their education is a bargain.

The study concludes by suggesting the federal student aid system “can and should be simpler and work better for students from all backgrounds. Achieving this will require greater transparency and clarity around college costs, connecting students with demonstrated need to grants and scholarships before borrowing, and supporting college completion, not just college access.”