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If you’re a parent, you’ve likely already begun to worry about how you’re going to pay for your kid’s college tuition. But what percentage of parents pay for college? It may be less than you expect. Learn more, and tips for helping to afford college.

What Percent of Parents Pay for Their Children’s College Education?

About half of families (53%) have a plan to pay for college, and of those, 61% say borrowing will likely be part of how they help their child afford higher education, according to Sallie Mae’s How America Pays for College 2023.

But the reality is, even a percentage of the total college bill can be tough for most families to pay. How much exactly should parents be saving? Average yearly tuition, fees, and living expenses per student, per year, currently rings in at $38,270, according to the Education Data Initiative. (As you might guess, private colleges can be significantly more expensive than in-state public universities.)

To put it another way, the typical family plans to contribute to the total college cost of almost $160,000 for four years, meaning they could aim to save tens of thousands of dollars to help their kiddos with college.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

What Student Loans Are Available to Parents?

Parents considering borrowing a student loan to pay for their child’s education can choose between a federal Parent PLUS Loan, or explore options available at private lenders.

According to the same Sallie Mae survey, parents’ income and savings account for nearly 50% of college costs. Other sources of funding include scholarships, grants, or student loans borrowed by the student. Parents can also borrow a loan to help their students pay for college. Approximately 41% of families report borrowing to help fund their child’s education.

Recommended: The Differences Between Grants, Scholarships, and Loans

Parent PLUS Loans

Parent PLUS Loans, as mentioned, are a type of federal student loan available for parents of dependent undergraduate students.

To apply, parents or their students must first fill out the Free Application for Federal Student Aid (FAFSA®). Then, the parent can apply for the PLUS Loan directly on the federal aid website. There will be a credit check to review any adverse credit history, but approval typically won’t be dependent on factors like the applicant’s credit score or debt-to-income ratio.

Parent PLUS Loans have a fixed interest rate that is set annually by Congress. For loans disbursed between July 1, 2024 and July 1, 2025, the rate is 9.08%.

Direct PLUS Loans carry an origination fee. For the 2024-25 school year, the origination fee is 4.228%.

Private Parent Loans

Private loans for parents are available from private financial institutions including banks and credit unions. These lenders generally review factors like the applicant’s credit score, income, and those for any cosigner. Private lenders determine their own interest rates, terms, and repayment plans.

Compare annual percentage rates among lenders to help you decide whether a fixed or variable interest rate would be best for your financial situation. Some private lenders charge an origination fee, while others do not.

Saving for Future College Costs

It can seem insurmountable to even think about saving in the range of $40,000 for each year for college costs on top of all your other financial responsibilities. One recommendation is to pay off your own student loans before putting significant amounts of money into college savings. Some parents find that refinancing their own student loans if they haven’t yet paid them off may allow them to save money — giving them more financial wiggle room to start saving up for future educational expenses.

How can refinancing help you save on your student loans so you can start saving for your kids’ education? Student loan refinancing allows you to trade in all your student loans for one new loan with a potentially lower interest rate and more favorable repayment terms.

But refinancing your student loans has, like many things in life, both pros and cons. Consider if the benefits outweigh any potential negatives. For example, you may be able to secure a more competitive interest rate and lower your monthly costs. However, refinancing federal loans will eliminate access to borrower protections or benefits. So, if you are using one of these benefits — such as pursuing Public Service Loan Forgiveness — refinancing may not make sense.

In addition, if you refinance for a longer term, you may well pay more interest over the life of the loan, which is why you should read up on the topic with student loan refinancing guides and other resources.

When you refinance your student loans, the lender looks at your current financial situation, including your credit score, income, and future earning potential (among other factors) to calculate an interest rate that could potentially be lower than what you might be paying to the federal government or a private student loan lender.

Refinancing Options

If you are interested in refinancing student loans with bad credit, know that it may be more challenging to secure a competitive interest rate. It’s possible to find a lender and refinanced loans that meet your needs, but you may need to shop around. Be patient as you go through the process.

You might also consider adding a cosigner to your application. A student loan cosigner is someone who agrees to take on responsibility for the loan if you, the primary borrower, is unable to make payments in the future.

If you’re unable to add a cosigner or just want to focus on refinancing without a cosigner, you might want to take some time to focus on building your credit. A few tips on building credit include making monthly payments on-time, keeping your debt-to-income ratio low, and checking your credit report regularly to remove any errors.

On top of potentially saving on interest rates, refinancing your student loans can consolidate multiple student loan payments into one monthly payment. This can simplify your money management and bill paying.

Furthermore, if you’re able to shorten your loan term through student loan refinancing, you could pay off your student loans even faster, further reducing the amount of interest you’d pay over the course of your loan. Those savings can be converted into savings for your child’s future education — hopefully saving them from having to take out too many student loans themselves.

Recommended: Student Loan Refinancing Calculator

Tips for Saving for College

There are a few options to help parents maximize their savings. In fact, one of the main benefits of saving up for college while your child is still fairly little is that you have time on your side.

•   If you can sock away even small amounts of money over time, depending on where you put it, you give that money a chance to earn interest or dividends over time — and potentially increase the amount you’ll have to put toward your child’s tuition payments.

•   Once you’ve decided to start saving up a college fund, you’ll have to choose where exactly you want to save that money. While some parents choose to set aside cash in a regular savings account, the relatively low interest rates on most standard savings accounts mean that your money may not grow as much as you’d like over time. A high-yield savings account with compound interest can help your funds grow.

•   Many parents consider a government-sponsored savings program in order to net some serious tax benefits, or even to start investing in order to grow money over time.

•   When it comes to government savings plans, you can choose from a 529 college savings plan, which offers generous tax benefits, or a Coverdell Education Savings Account, which allows you to invest in stocks and bonds to cover educational expenses.

The Takeaway

Most parents plan to contribute to their child’s college costs. Starting to save today can help you save as much as possible for future educational expenses. If you have your own student loans from your college days, one option to create some wiggle room in your budget is to refinance those loans to a lower interest rate.

If you are considering refinancing as one strategy to help you save more for your child’s college fund, take a look at what SoFi offers.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

How many families fill out the FAFSA?

In the most recent year studied, about 70% of families reported completing the FAFSA.

What percent of parents borrow money to help pay for college?

According to the most recent Sallie Mae data, 61% of families say they will borrow to help pay for a child’s college expenses.

What are the pros and cons of refinancing student loans?

On the plus side, refinancing student loans could yield a more competitive rate and lower monthly payments. That could potentially lower your costs. However, when you refinance federal student loans, you lose federal protections, such as forbearance, and, if you refinance for a longer term, you could wind up paying more interest over the life of the loan.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL-Q224-1940068-V1

A financial emergency is any situation that you didn’t anticipate or plan for that affects you financially. Examples of financial emergencies can include a job loss, unexpected car repair, or medical bills resulting from an accidental injury.

Six out of 10 American households experience at least one financial emergency per year, according to the Federal Emergency Management Agency (FEMA). Financial experts recommend planning ahead for life’s curveballs by saving an emergency fund.

Knowing what is a financial emergency–and what isn’t–can help you decide when it makes sense to tap into your cash reserves or turn to credit to cover the gap.

What Is Considered a Financial Emergency?

FEMA defines a financial emergency as “any expense or loss of income you do not plan for.” There are a number of different scenarios that could fit the definition of a financial emergency, which is why it’s a good idea to make sure you have enough money in your bank account to cover them, if possible.

Here are some of the most common financial emergencies that a typical household may encounter that could cause financial hardship.

Home Emergencies or Repairs

In addition to the regular costs of home ownership, it’s also important to be prepared for unexpected expenses that may crop up from time to time. For example, you may need to replace your HVAC system if it stops working or get a new roof if yours springs an unfixable leak. Other financial emergencies examples include appliance repairs or needing to pay your deductible if you have to file a homeowner’s insurance claim for damages.

Car Emergencies or Repairs

If you own at least one vehicle for long enough, odds are that you’ll have a financial emergency at some point. Your transmission might give out, for example, or you find out that you need to replace all four tires in order to pass inspection. These are costs that you may not plan for that but need to pay to keep your car on the road.

Loss of Income

There are different scenarios where a loss of income might constitute a financial emergency. If you’re the sole breadwinner for your household, for instance, and you get laid off, fired, quit, or can’t work because of an illness or injury, this situation can directly impact your ability to pay the bills.

Emergencies That Affect Your Health

A health issue, major or minor, could end up being a financial emergency if it affects your ability to collect a paycheck. This kind of situation may also trigger a money emergency if you have to pay for some or all of your medical care out of pocket. Health insurance may cover some of your care if you get sick or injured, but it doesn’t always cover all of your costs. And a financial emergency of this nature can be made worse if you’re unable to work.

Unexpected Loss of a Loved

Losing a loved one can be upsetting enough on its own, but it can also create financial pressure. If you need to travel to attend the funeral or you’re expected to contribute to final expenses, you can find yourself in a scenario that’s a financial emergency.

Natural Disasters

Storms, droughts, floods, and earthquakes seem to be in the news more frequently these days. Any one of these events can disrupt your life and cause loss of income as well as unexpected expenses. If a huge storm floods your town, your home might suffer damage and, even if you’re insured, other expenses could quickly pile up. Also, if your place of business were to be flooded, you might be out of work and therefore out of income for a while.

What Is Not Considered a Financial Emergency?

Now you know what a financial emergency is. There are some things, however, you might spend money on that don’t meet the strict definition of an emergency. Here are some examples of the kinds of situations that may feel necessary or urgent but aren’t actually financial emergencies.

Taking a Vacation

A vacation might feel like a “need,” especially if you could use some time away from a stressful job. But vacations generally are not considered to be examples of financial emergencies because they are not unexpected. Instead, you can plan and save for a trip at a pace that works for your budget.

Going to or Planning a Wedding

Being a guest at a wedding is optional, though you may feel social pressure to RSVP that you’ll be there. The costs of attending can add up, once you factor in gifts, new clothes to wear to the event, and other expenses. Still, those are not financial emergencies since you can always say no. Likewise, the cost of your own wedding is not a financial emergency either in that sense that you can plan and save for it.

Purchasing Gifts for Someone

Birthdays, holidays, graduations, and other special occasions might call for you to present someone with a gift. But a gift is not classified as a financial emergency since you usually have some advance notice that an occasion is coming up. Plus, it’s up to you how much you spend. While you might want to purchase something lavish, something more affordable (a book, going out for coffee or a drink) or simply a heartfelt card can suffice when money is tight.

Putting Down a Down Payment

If you plan to buy a car or a home, putting money down can reduce the amount you need to finance. This will then save you money on interest over the life of the loan. Down payments are money that you save over time, not funds that you have to come up with on short notice. While it may feel like an emergency when you find your dream house but haven’t yet saved enough money to buy it, this doesn’t meet the definition of a true financial emergency.

Replacing Items in the House That Are Not Essential

There are some things in your home that you may need to replace right away, especially if they break down. That includes HVAC systems and roofing that fails to do its job. As mentioned above, these common home repair costs can indeed qualify as financial emergencies. But other household expenditures, like new kitchen countertops or new furniture, are items you can budget and save for, so they’re not financial emergencies.

Determining How Much Emergency Savings to Have

The financial emergency examples listed above underscore why having an emergency fund is important. When you have ample emergency savings in place, it’s easier to handle unexpected expenses without stress and without having to use high-interest credit cards or loans to pay for them.

So if you’re thinking, Should I have an emergency fund? the answer is almost always going to be yes. The next question to tackle is how much to save.

One common rule of thumb is to have at least three to six months’ worth of expenses in your emergency fund. So if your monthly expenses are $3,000, you’d aim to save $9,000 to $18,000 for an emergency fund. An emergency fund of that size in a savings account should in theory be able to get you through a financial crisis.

Recommended: Ensure you’re prepared for the unexpected by using our emergency fund calculator.

Whether that amount is too high or too low will depend on several things. A few examples of important factors: the types of financial emergencies you’re most likely to encounter, how much you’d be able to cut expenses if you had to, and how quickly you’d be able to replace lost income should the need arise.

In the case of something like a job loss, for example, a smaller emergency fund might be sufficient if you can live leanly and no one else depends on you financially. Or you’ll likely be okay if you’re able to find a replacement job quickly and have one or more side hustles to supplement your income. On the other hand, if you’re married with three kids, a much larger emergency fund might be needed to sustain you until you can find another job.

Banking With SoFi

An emergency fund can save the day when a true financial emergency comes along. Knowing the difference between what is a financial emergency and what is not and when to use an emergency fund can help you to make the most of the money you’re saving.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are some real life examples of financial emergencies?

Real life examples of financial emergencies include an unexpected job loss, an illness or injury that prevents you from working, or an unplanned home repair. A financial emergency may be a one-time expense, like a car repair, or an ongoing situation that requires you to rely on savings to cover expenses.

Why might I need an emergency fund?

Having an emergency fund is a good idea if you own a home or vehicle, have concerns about what might happen if you were to lose your job, or simply don’t want to be caught unprepared when an unexpected expense comes along. You may also want to have an emergency fund if other people (such as a partner, spouse, or children) depend on you for income.

Is it recommended that I build an emergency fund?

Yes, it is generally recommended that most people have some type of emergency fund in place to cover unanticipated expenses. Going without an emergency fund may only make sense for people who have already accumulated substantial savings or investments they can draw on to cover unplanned events.

Photo credit: iStock/Talaj

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

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