Families borrow more, dig deeper into savings and change the way they live to pay for escalating costs of higher education.

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Star Tribune (Minneapolis)

MINNEAPOLIS — Jill Jerdee knows firsthand the value of a college degree. She doesn’t have one.

“Doors close because I don’t have a college degree,” said the 43-year-old from Osseo, Minn. That’s why she’s encouraging her kids to attend college no matter the cost. “It’s going to be like $120,000, $130,000 for four years. But you need it,” she said of a college diploma.

The economic downturn has prompted families to rethink their priorities. But they’re still sending kids to college even as they borrow more, dig deeper into savings and change the way they live to pay for escalating costs.

That’s the message from the third annual Sallie Mae-Gallup “How America Pays for College” study released Tuesday.

“Families over the last three years, even though they’re cutting back in other areas, are continuing to believe it is an investment,” said Sarah Ducich, Sallie Mae’s senior vice president for public policy. “We expected to see some erosion there but we have not.”

A whopping 81 percent of parents and 84 percent of students surveyed this year strongly agree that college is an investment in the future, unchanged from 2008. The majority of parents continue to believe college is so important that they’re willing to stretch financially to send their kids to school. Of the families surveyed, 99 percent said they took at least one step to make college more affordable.

“Families are telling me, ‘We’re not taking vacations, we’re not allowing our son or daughter to take a car to school. We’ve cut back,”‘ said Stuart Perry, director of financial aid at St. John’s University. He also is hearing from more families who have run out of options. “They’re saying ‘I’ve been unemployed and we’ve gone through our savings and I don’t have credit to co-sign a loan.”‘

In those cases, families may qualify for more need-based aid. The school is also willing to accept tuition on a monthly payment plan, something “more families are considering,” Perry said.

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According to the report, families paid an average of $24,097 on college related expenses — from tuition and textbooks to living expenses — in 2010. That’s a 24 percent increase from the $19,432 reported in the 2009 survey. Parent income and savings covered $8,752 of that amount, followed by grants and scholarships, student borrowing and student income and savings. While gift money from family and friends made up the smallest piece of the pie, it is the fastest growing piece, increasing by 53 percent in just one year. Of course, a family’s actual pie may look quite different from the average.

Middle-income families are most feeling the squeeze. The average family making between $35,000 and $100,000 paid $7,149 from earnings and savings in 2010, an increase of 34 percent over 2009. Middle-class parents also borrowed about as much as families making six figures to help their student pay for school, the survey found.

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With the cost of college far outpacing the growth of non-loan financial aid, and the stalled economy dinging most Americans’ net worth, more families are racking up thousands in debt to get that degree. Americans are now on the hook for $830 billion in student loan debt — a figure that surpasses the $826.5 billion in revolving credit owed, according to analysis from Mark Kantrowitz, publisher of www.finaid.org. Some analysts fear student loans, which are nearly impossible to discharge in bankruptcy, will be the American consumer’s next financial crisis.

Ronald Ramsdell, founder of College Aid Consulting Services in Minneapolis, said the economy is forcing his clients, who come to him while in high school to navigate the financial aid process, to tap sources they wouldn’t have considered in the past. Some are turning to family and friends for assistance. Others are tapping retirement accounts. A few have resorted to paying for college by borrowing against a stock portfolio.

“I’ve been doing this for 20 years and I’ve never seen things this bleak,” Ramsdell said.

Six percent of those surveyed took a retirement savings withdrawal averaging $8,554 to pay for college costs last school year. The same percentage of respondents resorted to putting an average of $4,943 on a credit card. Surprisingly, 4 percent of those surveyed managed to tap an average of $11,204 in home equity to pay for college, even though tighter credit conditions and declining home values shut off this option for many families. The good news is that more families are using college savings to pay the bills, indicating that some parents have planned ahead.

Although most students believe they need a college degree to earn more money and work in their chosen field, some are beginning to question whether an education is worth the hefty price tag. Only a slight majority — 53 percent — of those surveyed in 2010 feel college is worth the cost; 62 percent thought a degree was worth it in 2008.