Parents Become More Self Reliant in Paying for High Costs of College, Says College Savings Foundation’s 2011 State of College Savings Survey
WASHINGTON, Aug. 15, 2011 — /PRNewswire/ — Parents of college bound children are resigning themselves to the reality that the buck stops at their doorstep in funding the ever rising cost of college in an uncertain economic climate. A national survey of parents from across the country and income levels finds that they hold fewer illusions that external resources like financial aid or grandparents will pay for college. Instead they are relying on savings, current income and to a great extent education loans that will be shouldered primarily by their children in the years and decades to come. These are top line findings by the College Savings Foundation for its fifth annual 2011 State of College Savings Survey. www.collegesavingsfoundation.org
“We are seeing a strong shift to self reliance among parents who are better informed about the costs of college and strategies for funding it. At the same time, parents are worried that even their best efforts will not keep them and their children out of long term debt,” said Roger Michaud, Chair of College Savings Foundation, a leading nonprofit helping American families save for their children’s college education.
Nearly half, 48 percent of parents, are looking to education loans to pay for college – most of which will be signed over to their children – with the majority, 68 percent, taking from five to beyond 20 years to pay off. Sixty percent of parents expect to cobble together some funds from current income. And while 65 percent of parents are actually saving, they are not necessarily confident that they can reach their goals: 40 percent of all parents are not very confident that they can reach their college savings goals, as compared to 34 percent last year.
Regarding financial aid which in prior years appeared to be the backstop for college funding gaps, this year’s survey saw a significant change: 38 percent of parents expect no financial aid at all, up from 28 percent last year. Only 29 percent expect it to cover up to 1/3 of college costs, down from 35 percent last year; and 20 percent expect it to cover from 1/3 to 2/3, down from 24 percent.
Parents aren’t comfortable asking for help from friends or family – 69 percent won’t ask for college funding instead of material gifts (up from 62 percent last year); and only 24 percent will ask, down dramatically from 31 percent last year.
There is still one big resource that parents are looking to for help and that is the U.S. government: 25 percent called for the President and Congress to regulate the cost of college. This was far ahead of the next most popular request (14 percent) to provide tax breaks to help lower- and middle-income families save for college.
Instead, parents continue to save for college on their own and those who use 529 college savings plans and automated savings plans are significantly more successful than those who don’t: 76 percent of parents with 529 plans had saved more than $5,000 per child, compared to only 29 percent of parents without one. Parents who are saving with 529s say it is because of the high costs of college and their flexibility as they can be transferred among children.
“529 college savings plans are designed to meet each saver’s time horizon and risk tolerance. They present a wide variety of options including age-based evolving portfolios, more conservative investments like stable value funds or FDIC-insured certificates of deposit, which are particularly important as a child reaches college age, and more growth oriented investments like equities to enable a college savings account to meet the rising costs of college over a decade or two,” Michaud said.
Another positive trend is an uptick in parents’ financial literacy: 34 percent say they know how much they need to save to fund their child’s college, up from 27 percent last year and the highest level in four years.
How 529s Help Families Save
One of the ways that parents are saving is through 529 college savings plans – still owned by around one quarter of the respondents and the number one college savings vehicle for 19 percent. Those who own a 529 say they do because of the rising cost of college (50 percent of 529 holders, up from 45 percent last year) and transferability of saving among children (39 percent of 529 holders, up from 28 percent last year).
Parents without a 529 plan are far less effective savers, with nearly half, 45 percent saving nothing at all. In contrast, parents with 529s are dramatically more successful savers than those without:
- 15% of 529 owners have saved between $5,000 – $10,000, as compared to 10% of those who don’t own a 529
- 20.5% of 529 owners have saved between $10,000 – $25,000 as compared to only 8% of those without a 529
- 20.5 % of 529 owners have saved between $25,000 – $50,000 per child, versus only 4% of those without a 529
- 9% of 529 owners have saved between $50,000 – $100,000 versus 4% of those without a 529
- 11% of 529 owners have saved more than $100,000 per child versus 3% of those without one
SOURCE College Savings Foundation
- Pluses and Minuses of Coverdell Accounts: Dealing with the Disadvantages (education.com)
- Saving for College (education.com)
- Section 529 Plans: Taking Qualifying Distributions (education.com)
- Basics of Section 529 Plans: Picking Your Plan (education.com)
- Economics Crash Course: Teens Learn College Education Doesn’t Come Cheap (timesoftexas.com)