When It Comes To Paying For College, U.S. Parents Take On Nearly Twice The Cost As The Rest Of The World
Posted By Donna Fuscaldo on July 5, 2016 at 7:39 am
Student loan debt isn’t only a problem for students. According to a new survey from global banking and financial services giant HSBC, American parents foot a lot of the bill—to the tune of $14,678 a year, nearly double the world average of $7,631. What’s more, a large swath of parents in America wouldn’t think twice about getting into debt to fund their child’s or children’s college education at the expense of their retirement and daily expenditures
“The financial sacrifices parents are willing to make to fund their child’s education is proof of their unquestioning support to helping their child succeed in life and of the importance they place on education,” says Michael Schweitzer, group head of sales and distribution at HSBC. “But it is crucial that this support doesn’t lead parents to make trade-offs between all the outgoings they have and ultimately compromise on their other financial responsibilities, such as saving for their retirement or paying off the mortgage.”
It’s no secret the cost of a college education is skyrocketing, and the nation is contending with a huge student debt problem. According to The College Board, tuition at a four-year state school for in-state residents cost $9,410 in the 2015/2016 school year and $23,893 for out-of-state residents. That jumps to $32,405 a year for a non-profit private school. While scholarships and financial aid can help cover some of the costs to attend a four-year school, parents often must step in, whether that’s paying a portion of the bill or cosigning a student loan.
For many parents to help, however, it means putting off paying down high interest rate credit-card debt, reducing their mortgage or saving for retirement. And while parents around the world focus a lot of their income on college, American parents seem to be spending more than parents in a lot of other countries based on the findings of HSBC’s Foundations for the Future report, which surveyed 6,200 parents in 15 countries.
HSBC found only the only parents who paid more on average than U.S. parents are from the United Arab Emirates, Hong Kong and Singapore. For example, in the UAE, parents spend an average of $18,360 a year, while in Hong Kong that amounts to $16,182 a year and in Singapore the average amount stands at $15,623 a year. Meanwhile in China, the average parent contribution is $5,718, $3,807 in Mexico and $5,990 in Canada. Canadian parents do cover more of the costs than in other nations, even if the bill is lower.
Parent attitudes about college differ by country
According to Schweitzer, the reason parents in some countries shoulder more of the burden than in other areas is because there are contrasting attitudes between emerging and developed economies when it comes to who is responsible for funding a college education. Take Asia for an example. Parents in Asia are more likely to cover the cost of higher education on their own compared with parents in the Western world, where students are expected to contribute at least part of the cost of their education.
“This is one of the reasons why of all countries, parents in the UAE, Hong Kong and Singapore report to spend the greatest amounts toward their child’s college education each year: They contribute more. Another reason is that many students from UAE or Hong Kong are studying abroad, which triggers much higher costs. In this year’s survey we found out that over a third of students from the UAE currently go to college in a different country, which compares to only 8 percent of all students globally,” he says.
U.S. parents do a poor job of saving for college
Although many parents in America pay a sizeable portion of their child’s higher education, that doesn’t mean they are doing a good job at preparing for something that can easily set them back more than $50,000. HSBC found in its survey that while 98 percent of U.S. parents are considering a college education for their child or children, 58 percent said paying for it will make it harder to keep up with other financial commitments. What’s more, 40 percent think paying for college is more important than long-term savings, 37 percent place it higher than paying back credit cards and 37 percent think paying for college is more important than saving for retirement. Of the survey respondents, 61 percent are paying for college from their day-to-day income.
“Using day-to-day income to pay for college can in turn make it harder for parents to juggle between their several financial commitments and threaten their own financial wellbeing,” says Schweitzer. “Starting to save or invest early, even small amounts, can help bridge the funding gap, and means parents will be better placed to support the long-term ambitions they have for their child or for themselves.