Parents are saving more to help children pay for college. Yet, only 60% have a plan while 47% feel they are on target to meet their savings goal.
Students and parents are questioning whether the new college experience — a partial or entirely remote one due to the Covid-19 pandemic — is worth the cost. But parents still largely believe the value of a college education justifies the rising price tag and they are saving more money than ever to help their children pay for it.
Three in four parents (and 80% of millennial parents) say the value of a college education is worth its cost, according to a new Fidelity Investments report1 based largely on a survey of 1,790 families across the U.S. with children aged 18 and younger expecting to attend college.
Actual College Costs
Most have no idea exactly what that cost will be; 32% are unsure what college will cost by the time their child enrolls, 59% use their “own best guess” on college costs, and 71% do not use any online planning tools to approximate costs, according to Fidelity’s survey.
That uncertainty, or their familiarity with tuition, room and board, and other expenses ahead, is leading families to save more. Even as millions of people have become unemployed and the economy withers, a record 78% of parents are saving money to help their children pay for college, up from 58% in 2007. More are using tax-advantaged 529 savings plans, too. Almost half of parents saving (48%) have opened a 529 plan, up from 39% in 2018.
But parents have saved a median of $20,000 for their children, well below the total needed to help as much as they envisioned, and they know it. Only 60% have a savings plan and just 47% feel they are on target to meet their savings goal.
Most families planned to cover 65% of college costs (tuition, fees, room and board, and others) and only 33% are on track to reach that funding goal by the time their child is ready to enter college, according to Fidelity. Their children, through their own income or grants, scholarships, student loans, gifts, and other sources, will have to make up the difference, totaling thousands of dollars.
Financial Advisor Benefits
Families working with a financial advisor are closer to achieving that 65% objective. They have saved a median of $25,000 and 82% have a plan in place to reach their savings goal, according to the report. Overall, this is a positive. Advisors appear to be helping people achieve their goals.
But what about the 18% of families without a plan in place to reach their goal?
There are a lot of potential explanations. The pandemic has veiled many things with uncertainty. At the time of the survey, those parents might have been choosing to allocate less money to college savings in favor of cash. Or, have less money to save due to lost income.
The rising cost of a college education in the U.S. might have simply outrun their savings rate and needs to be increased. Or, it’s possible their advisors haven’t talked to them about college savings and created a specific plan at all — their advisor might not offer comprehensive financial planning.
“With the cost of college rising above the rate of inflation for many years, it’s important to raise awareness about how prepared American families are so that they can adjust their college savings strategies to better meet expectations,” Ron Hazel, senior director of Fidelity Advisor 529 and individual retirement products, said in a note to RIA Intel.
Advisors should also be raising the topic with clients. Saving for college was the top savings priority for 22% of families, second only to retirement, the top priority for 30% of families.
More parents are becoming aware of 529 accounts and talking to advisors about them, but many still don’t understand the benefits of using one, Hazel said.
As founder and owner of Bradley Wealth, a high-touch boutique financial planning firm, Michael Bradley’s greatest passion in life is to help others experience their personal True Wealth. With his friendly, proactive, and caring approach, Michael pledges to provide the finest wealth management service experience anyone has ever had. And if you aren’t a client, no problem; Michael pledges to be a warm and caring friend who reminds you to live your life by your own design, not by default.