More Parents Than Ever Saving for College, Fidelity Investments Study Says
Posted By Donna Fuscaldo on August 25, 2016 at 12:03 am
With the price of a four-year degree continuing to skyrocket, millions of Americans suffer from student loan debt. But results of a yearly Fidelity Investments study released today indicate there’s reason for optimism. Parents are doing a better job of saving for college for their children – up to a point, anyway.
Yes, the rate of parents saving for college is at an all-time high, according to Fidelity Investments 10th Annual College Savings Indicator Study. But savers are only on track to hit one-third of their goals. “There are some good trends we are seeing, but when you peel back the onion and look at the layers, there’s still challenges,” says Keith Bernhardt, vice president of college planning at Fidelity Investments.
Each year Fidelity Investments polls parents, asking them questions about their willingness to to participate in saving for college and what portion of the bill they expect to cover. The rate of parents saving for college is rising since the U.S. came out of the Great Recession, but this year marks a record in the number of parents putting away money. Nearly three in four parents, or 72 percent, have started saving for college, compared with 69 percent in 2015 and 58 percent in 2007. Fidelity also finds parents are saving each month, socking away an average of $300. In addition, they aren’t doing it haphazardly, with 66 percent of parents claiming they have a financial plan to reach their college savings goals.
Parents are saving for college because they want to carry the burden
Parents hope to pick up the lion’s share of the cost of college, with most saying they plan to pay 70 percent, up from 66 percent last year and 57 percent in 2012. They expect scholarships, student loans, gifts and money from their children to cover the remaining 30 percent. “More people are sensitive to the idea of debt because they have either experienced college debt on their own and because it is a big part of the national conversation today,” Bernhardt says, noting the improving economy also plays a role. But that 70 percent college savings goal turns out to be a lofty one. Fidelity finds parents are only saving 29 percent of their target.
Paying for college long has been an issue for families, but with the nation staring at more than $1 trillion in student loan debt and many parents still paying off their own student loans, making sure their children aren’t shackled by the same debt is a priority. So much so that Fidelity finds saving for college ranks in the top three priorities, sharing space with putting money away for retirement and creating an emergency fund.
Hoping history doesn’t repeat itself
When it comes to why they are willing to contribute so much, the majority cite their own experience with student loan debt. Of the survey respondents 76 percent believe the amount of student loan debt children graduate with will hurt their chances of financial independence.
The cost of a college education has been on the rise for years now. According to the College Board, the average cost of a year at a private college is $32,410, $9,410 for a state school and $23,890 for out-of-state residents attending a state school. Multiply that by four or even five years and it’s not surprising parents are worried about the cost of college. But this crop of parents is getting creative in how to raise the funds. Fidelity found 71 percent are looking to manage costs associated with higher education compared with 53 percent in 2007.
Some of the strategies parents are employing:
- Delaying the start of school for a year or more to save more.
- Encouraging their children to graduate in fewer semesters.
- Favoring a public school over a private one.
- Having their kids live at home and commute to college.
What’s more, parents are considering taking on secondary employment, having a non-working spouse get a job, putting the kids to work in part-time gigs and having children kick in some of the costs.
Even more importantly, parents are embracing dedicated college savings accounts instead of comingling the savings with other accounts. Fidelity found 41 percent use a 529 plan, up from 39 percent last year. 529 plans are tax advantaged, which makes them more attractive. “People are using more 529 plans because it’s one of the best college savings vehicles,” says Brian Boswell, vice president, research and development at Savingforcollege.com. “529 plans offer a lot of benefits that are unique to them. States are often adding their own perks on top which is increasing usage.”