American families are making the investment in higher education the smart way – by pursuing grants and scholarships more frequently than borrowing – according to Sallie Mae’s How America Pays for College study, conducted by Gallup. The study found that among American families, 51 percent received grants and scholarships, 25 percent of students borrowed federal loans, 12 percent of students borrowed private education loans and 5 percent used credit cards to pay for college expenses. Fifty-eight percent of families paid for college last year without borrowing at all.

Based on a nationally representative survey of college-going students and parents of undergraduates, the study found that for the average family, parents paid the largest portion of last year’s college expenses, 36 percent, using current income and savings. Families used scholarships and grants to cover 25 percent of the college bill and loans to cover an additional 23 percent of college costs. Students worked and saved to pay an additional 10 percent, and family and friends helped with the remaining 6 percent.

The study, conducted in March/April 2009 among 1,604 college students and parents of undergraduates, confirmed that families deeply value higher education, with 91 percent agreeing that continuing education leads to a better quality of life. The study also found that, despite the country’s economic challenges, American families continue to have strong conviction in their ability to continue to pay for their son’s or daughter’s higher education: 67 percent were confident or extremely confident, compared to just 13 percent who expressed little or no confidence.

"Clearly there is no single way to pay for a college education, however, we are encouraged that the data confirms families follow the ‘1-2-3 approach’ that Sallie Mae has recommended for years: first, savings, scholarship and grants; second, federal student loans; and third, private education loans," said Albert L. Lord, vice chairman & CEO. "Experience has taught us that when we counsel people to borrow wisely, students benefit from lower defaults."

How America Pays for College found that 58 percent of families who borrowed did not take the student’s expected starting salary into consideration when deciding whether or how much to borrow. In addition, 23 percent of students could not answer when asked to estimate their future monthly student loan payment. The remaining 77 percent gave estimated future student loan payments that showed little correlation with the total amounts the students said they borrowed.