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Financial Literacy - College funding
National poll results
More than half of parents say they can't afford college, but they'll postpone their retirement to help finance it.
Smart ways to pay for college

Half of families can't afford college

While cutting back on spending is by far the sacrifice most are willing to make, McBride looks at it a different way: "Only 59 percent of parents would make deep cuts to discretionary expenditures, such as dining out, clothing purchases and trips, to afford college. This is the low-hanging fruit of pulling together money for college," he says.

Kantrowitz agrees, noting that "willingness to sacrifice discretionary expenses for their children's education declines so sharply from low income (less than $50,000) to middle income." He explains that it's "not so surprising that parents in the lowest income band would do whatever it takes to see their children graduate from college."

Nearly double the respondents plan to take a personal loan, compared with the number who expect to use home equity for college expenses, at 43 percent and 24 percent respectively. This is even true among respondents with above-average income.

McBride can explain away some of the discrepancy, but not the underlying logic in the loan-over-equity preference: "Some of this response might be explained by renters, homeowners without any equity and concern about the future path of home prices or the housing market. But personal loans come at higher interest rates than does home equity borrowing, and unlike home equity, interest on personal loans is never tax-deductible. Even a federal student loan, such as the PLUS loan for parents, carries a higher after-tax cost than homeowners with good credit would pay for a home equity loan or line of credit."

Less than 10 percent of parents borrow from the PLUS loan program today, despite it being lower cost than private student loans.

Although Kantrowitz also finds the willingness to take personal loans troubling because of their higher interest rate, he actually suggests PLUS loans. "That 43 percent would take a personal loan to help pay for their children's education is interesting, since less than 10 percent of parents borrow from the PLUS loan program today, despite it being lower cost than private student loans," he says. "What people say they'll do and what they actually do are often quite different, especially if college is not imminent."

Another number that raises eyebrows is how many parents are doubling up jobs. "I was really surprised that such a high percentage, 39 percent, expect to take a second job to help pay for their children's college education and that the answers were not correlated well with family income, other than the lowest income band," Kantrowitz says.

-- Posted: Sept. 17, 2007
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