Look Who Is Borrowing the Most for College

The unrelenting cost of college is hitting upper-middle-class families hard.

According to a front-page analysis today in The Wall Street Journal, it’s these families who are experiencing the largest rise in college-loan debt.

In its analysis, the newspaper categorized upper-middle-income as households with yearly incomes in the 80th to 90th percentiles that range from $94,000 to $205,000.

Among families with this income, 25.6% had college-loan obligations in 2010, which was up from 19.5% in 2007.  In comparison, 19.1% of families from all incomes had college debt versus 15.2% in 2007. The average amount that affluent families borrowed jumped to $32,869 in 2010, which is up from $26,639 in 2007.

There are now more than three million households who owe at least $50,000 in college loans, which is a dramatic rise from the 794,000 families who owed this much in 2001.

Affluent Family Dilemma

College can be costly for families of all incomes, but clearly affluent families, who are more likely to aim for expensive, private colleges and universities,  should be able to save more for this priority than others.

I have affluent parents email me all the time –this demographic seems to be attracted to my college blog – who are financially unprepared for college costs. Sometimes I think these parents are looking to me for miracle answers.

Just the other day, for instance, I had a dad email me who has a $1 million mortgage on a house with no equity and the family makes about $160,000 a year.  They are looking for a school that will give a lot of money to their brilliant teenager. I was stunned how overextended the family was financially while their child was on the verge of heading off to college.

I got another email recently from a dad with a multi-million-dollar home in California and an income of roughly $250,000 based on his Expected Family Contribution and he said he and his wife only had $40,000 saved up for their son’s college. He also was looking for mega scholarships.

Some affluent families must assume that their kids are so smart or so athletically gifted that they will receive huge awards. Athletic scholarships, however, are way overrated and even though affluent students will often receive merit scholarships for college their parents will still face a substantial tab.

According to a survey by the Human Capital Research, about a third of families of $95,000 to $125,000 (I certainly wouldn’t consider these folks affluent in expensive parts of the country), never saved for their children’s college costs.

Of course, the best way to make college more affordable is to become an educated consumer, which, of course, is what people who are visiting my blog are trying to do!

Lynn O’Shaughnessy is the author of the second edition of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.

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  1. By the way – I just bought your book! Judging from the comments at amazon.com, this will be the best college money I’ve spent so far!

  2. I would like to know what to do if you don’t qualify for a Parent PLUS loan. Our second son is now in college, and we had quite a bit of money saved for their college (over $60,000, which is phenomenal for people with our early salaries), but I lost my job in 2009 and that put us into a financial pickle. We were able to pay for our oldest son’s first two years of college and our second son’t first year, but we are in the position now where we don’t have enough saved for his entire tuition and need to borrow – but we don’t qualify! We earn about $150,000 per year, own our house and another house with NO MORTGAGE on it, and STILL cannot get a $9700 loan! We have tried EVERYWHERE. Any suggestions? (By the way – I wasn’t aware that we had any ‘issues’ on our credit. I just purchased a vehicle in March of this year after my car died and I got a 0% interest rate.) How is it that you can borrow money to buy a vehicle but cannot borrow money for your child’s education? We are paying for him an apartment near campus and books out of pocket. We are just $9700 short.

    1. Hi Karen,

      Since you didn’t qualify for a PLUS, your child can borrow more via a federal Stafford Loan. A freshman can borrow up to $9,500 via a Stafford of which no more than $3,500 can be a subsidized Stafford. A sophomore can borrow $12,500 a year of which $5500 can be subsidized. And juniors and seniors can borrow $12,500 a year of which up to $5,500 can be subsidized.

      The interest rate on a subsidized Stafford is lower and the interest is paid by the federal government until the child leaves school or graduates.

      You should be able to borrow what you need through this program.

      Good luck.

      Lynn O’Shaughnessy

  3. The point is this, and it’s a simple one, paying for college is not necessarily easier if you have a high EFC because YOU WILL PAY MORE. At least some of the advantage of higher income is offset by higher cost. Certainly, families still have to be responsible, realistic planners and savers.

    As for what’s left from a family who makes $250K, take 35% federal income tax, plus state, local, property, payroll and sales taxes and factor in a maximum contribution to a 401k, and 50% is not far fetched.


    1. Mike

      I think you might need a better accountant if you are paying anything near 50% in taxes. We pay 33% blended rate (federal, state, property, and sales) and that is with a “self employed” designation which means we cover both sides of taxes (employer and employee). We live in a high tax state.

      If you are in fact paying a lot more than that…it would be worth hiring a good accountant.

      Also, 401(k) contributions are savings…not expenses. Why in the world would anyone add that to their ‘tax bill’? Especially since it reduces your taxable income. I guess under that scenario, one could say that our family is “taxed” at over 70%…if you add all our savings (pre and post-tax) into our “tax” obligation. But that makes no sense.

      1. Never said 401k was a tax. I’m just saying you can make enough to have a high EFC and still find it challenging to save enough for today’s college prices. It’s because higher earners pay more.


  4. I echo what Sasha has to say. We’re in the same income bracket. We’ve saved for years – in fact we started before we had children. Ruth from WSJ interviewed me for this article. I haven’t read it since I’m very frugal and don’t pay for WSJ online. But from the article title, I don’t think I added enough fodder for what they’re trying to say.
    Our daughter is going to a school that does cost more than we were hoping to spend, but she had a choice of schools, got a scholarship of over 60% tuition and we can make it work, for now, without loans. We have a comfortable but not grand house, haven’t bought a new car since 2004, visit family on our “vacations” and try not to eat out too much. My daughter was shocked to hear how many of her classmates’ families have no college savings. I think she appreciates our lifestyle much more now.

  5. As a family who makes the kind of money talked about in the article, I am always a bit disheartened when others in the same income range talk about how “people can’t understand” how hard it is to save on that kind of salary.

    I know exactly how hard it is to save on that salary…if you want to live a lifestyle that doesn’t allow you to save. Life is about choices. I would think that would be obvious…especially to families whose education and income allow them more than the average family.

    It is a choice to buy a house with a big mortgage. It is a choice to have one or two cars. It is a choice to go on vacations. It is a choice to participate in extra curricular activities that cost a lot of money.

    It is a choice to prioritize college savings or retirement savings or heck, any savings at all over those other consumption choices. What I see a lot of upper income families complaining about is that they are shocked, SHOCKED!, that they are being forced to confront the choices they made for approximately 18 years. College financial aid is not supposed to subsidize your large mortgage payment, your car payment or your decision not to fund your retirement before your children reached college age. It is supposed to offer aid to those who didn’t have the option of choosing between saving and spending. That is why people with less income get more aid.

    If you really want to afford college, either choose a reasonably priced school (they are out there, you just won’t have the same bragging rights) or start saving instead of spending. And stop the ridiculous statements like people will pay $125K in taxes if they are making $250K. That is so incredibly wrong on both the face of it and the ignorance of tax law that it shows.

    Colleges expect that families will pay for college in three ways. 1. savings that they have accumulated over 17-18 years, 2. cash flow during the 4 years of college and 3. loans to be paid back in the future. If you can’t figure out how to make college happen with those 3 payment parts – you really didn’t ever plan on paying for college yourself. And failing to plan sets up the inevitable planning to fail.

    From a family on that income who has been saving – no sympathy here. We have a tiny house, one old car and prioritize savings. A lot of other families are having a lot of things we don’t while their kids are young. I don’t know why they should’t have to pay for college just the same as us when their kids are 18. Choosing your consumption poorly shouldn’t be anyone else’s problem when you did have the means to choose more wisely.

  6. I’m disappointed to find you taking the easy, class-envy way out, Lynn. Why pass judgement on folks who have a million dollar mortgage or someone who makes $250K a year? Families across all income levels have found themselves with negative home equity for reasons having nothing to do with “keeping up with the Jones’s” or house greed or whatever you want to call it. Furthermore.. are these families paying private school K-12 tuition? For multiple children? Are they trying to save for retirement? Do they keep “rainy day” savings like we’re all supposed to? It’s too easy to throw the big numbers out there and let readers assume families are trying to avoid “paying their fair share.”

    Let’s face it: EFCs have little to no basis is reality. College costs are another fantasy. Colleges will continue to increase tuition as long as government keeps throwing more money into subsidies for higher education. So-called affluent parents can try to keep saving, but it’s likely they won’t be able to keep up with tuition costs. And they can’t count on merit aid, since that has very little to do with actual merit.

    Financial aid, just like college admissions, is a broken system. There are no winners, not even the “rich.”

  7. Michelle, I didn’t put 2 and 2 together. I love the DIY College Rankings page and spreadsheet! I play with the spreadsheet like others frequent College Confidential. 😉

    The way we’ve ended up a little behind the 8-ball is by not knowing that ALL schools were going to be so much more expensive than when we started saving. We just figured exclude the overhyped Ivys and we’d be OK. Little did we know that schools like Whitman, Colorado College and Carleton would cost a family just as much as Harvard, Yale or Stanford.

    If I pass any words of wisdom on to parents with young kids it is not just to save, but to learn to use the tools like your spreadsheet and Lynn’s book early. We are fortunate that even though we under saved, we’ll still be able to make up the difference. Many won’t be so fortunate. If they learn early, they’ll know when to adjust for a change in the target.


    1. Mike – when you refer to the DIY College Rankings page and spreadsheet – can you tell me where to find it? Is there a link you can reference?

      Many thanks!

  8. Mike’s right, the number I was thinking of included both need an non-need aid http://www.insidehighered.com/news/2011/05/23/nacubo_survey_finds_increased_tuition_discounting_led_to_financial_problems_during_the_recession. And I wasn’t including schools like Amherst and Williams in the the kinds of schools that give merit aid.

    It’s a tough situation all around because we know that tuition is going up faster than people can keep up with but we also know that there are some people who refuse to take any responsibility but still think they deserve a certain standard of benefit. Then there’s the feeling that people who make less somehow got it made in terms of financial aid. But that’s not really the case either. http://diycollegerankings.com/2012/07/03/financial-aid-low-income-students-no-cause-envy/. I don’t know what the solution is, maybe it’s not schools cost too much but that families don’t make enough 😉

  9. Hey Michelle, from what I’ve been able to find, the merit aid numbers you referenced are high. I don’t know the number for the industry as a whole, but I have a general sense from reading lots of Common Data Sets (CDS). In the H section, you can see how many students applied for non-need based aid, how many got some and what the average award was. The range is fairly large. Starting with zero for all of the Ivys and most of the top tier LACs on the East coast like Swarthmore, Williams and Amherst to several thousand for about 5% of the incoming Freshman class, the most generous schools offer as much as over $10K for 25% of the incoming class. They are rare.

    This leaves affluent families (I’ll define that as any family with an EFC over $50K) with a BIG decision, what is an undergraduate education worth?

    According to Princeton, the total cost this year will be about $55K. The average need award is $37K, a net difference of $18K. Over 4 years, that’s $76K. Most would agree that a Princeton degree is worth at least that. Princeton offers no merit aid making the degree cost $220K for any family with an EFC over $55K. Now it gets a little murkier. Is that degree worth $220K?

    Certainly one can argue that there will be a little “bump” in the value from the connections made at such a prestigious institution, but not that much. In my personal opinion, there is no undergraduate degree that one can obtain anywhere that on its pure merit as an investment is worth $200,000. There simply isn’t a job market with only a BS/BA that would generate a return to justify choosing that route over a state school at 1/2 to 1/3 that investment.

    Yet, some still choose that route. Most do, I believe, because they are misinformed that their children will be disadvantaged if they don’t. My view, and we haven’t made that decision yet, our son may go to a state school or a small LAC, is that if a family does chose the elite route, the differential in money is spent on the experience. It should be viewed purely as a gift.

    Anyone can see though how a family just bumping up into the high EFC range might be jealous or even mad as they see the Princetons and the Harvards of the world constantly touted as “good deals,” knowing that they will have to pay full price. No discounts allowed.


    1. Mike,

      I don’t think any college or university is worth $200,000. If paying this amount is a stretch — and it will be for most parents — I’d say move on. Studies have shown that it is not the Ivy League schools that provide an economic advantage to students, it’s the students themselves who are bright and motivated and often driven to succeed. These students will do well wherever they attend college.

      Lynn O’Shaughnessy

      1. As they say, it’s not where you go…its what you do.

        With that said, even generous small LACs will come with a hefty price tag if your EFC is high. Both Juniata and Beloit will be $120,000 assuming an average “merit” award and no need based aid. Whitman, another CTCL and hardly a snobby East coast Ivy or Ivy wannabe, is $184,000 after their average aid.

        The bottom line is families with high EFCs had better be prepared to pay a LOT of money to go to ANY private college.


  10. I think Mike is correct in terms of who could have predicted the increase. That’s one problem. But the other problem is people’s response. Take the case of the parents with the $40,000 saved. It’s not enough for even a year a Princeton. It is enough for two years at most state schools (another problem). I think I remember reading that the average discounting (merit scholarship) for private schools that do that sort of thing is $15,000 or $18,000 a year. So the $40,000 plus a merit scholarship and a student loan will get two years at a private school and maybe they could come up with the other two years. Not ideal but doable.But it’s not going to Princeton and that’s a choice the family has to make.

  11. When you look solely at a handsome income of $250,000, it is easy to quickly conclude that paying for college should be easy for that family, but it is not so simple. Considering no other obligations than state, federal and local taxes and contribution to the family’s retirement, they’ll likely have about half of that or $125,000 to cover all of the rest of their life’s financial obligations. Certainly their EFC will be so high as to be ineligible for need based financial aid regardless of the price of the institution their child chooses. Now, put one child in Princeton, Sarah Lawrence, or any of the other of the many schools that now list for nearly ONE QUARTER OF A MILLION DOLLARS for four years and that family will be expected to pay about 50% of their post-tax, post-401K income to college! To cover that obligation in advance, a family would have had the foresight to contribute the same amount beginning at their child’s birth to the college fund as they were allowed to maximally contribute to their 401K, somewhere just under $14,000 per year. They would have had to have known in advance that private school costs would DOUBLE during their child’s pre-college life. It’s no wonder people are scrambling, affluent enough to qualify for nothing and not so rich that it won’t be a HUGE effort to pay.


  12. It sounds like these people bought everything else on credit, why not a college education? And I imagine because of the situation they’re in, they haven’t done anything to prepare their kids to look at state schools or less prestigious privates that will offer merit money. I can’t claim any superior financial skills, we didn’t have enough saved but we knew we didn’t have enough saved and would be on the hook for at least our in-state tuition. But we did understand about merit aid (your book was one of the reasons) which made private schools an option. And our son was never aiming at a brand name school. College tuition is a rude awakening for any family that is just starting the college search process, but obviously for some the awakening is worst than others.