Despite All-Time High College Savings Rate, Families Underestimating Future College Costs

Investment Weekly News

By a News Reporter-Staff News Editor at Investment Weekly News -- While saving for college remains at an all-time high with 72 percent of families focused on building their college nest eggs, Fidelity Investments® new College Savings IQ survey reveals that many parents could benefit from additional education when it comes to savings and planning best practices. The survey identified knowledge gaps in three categories: 1) the future cost of college and how much they should be saving; 2) fundamentals of 529 college savings plans; and 3) how saving for college impacts financial aid eligibility.

Estimating future college costs is not the only area where parents need more guidance. Nearly half (45 percent) of parents admit they do not have a good idea of exactly how much they should be saving each month.

"Pinpointing how much you should save can feel like a moving target - especially when your kids are young and college goals for your child's education may be more undefined," says Keith Bernhardt, vice president of college planning at Fidelity. "But the key is to get started. Set a reasonable goal to start building your college fund, and take advantage of free and simple to use tools available online to refine your savings goals over time."

This uncertainty is not hindering parents' motivation to save and ultimately reduce the potential student loan debt their children may face down the road. Eight-in-10 parents cite concern for their child taking on significant debt as a factor motivating them to save more. Just how much debt do they worry their kids will carry? Eighty-five percent of parents expect their child to graduate with debt, estimating an average of $45,000 in student loans.

Furthermore, many parents are looking to reduce the financial burden their children will face. In fact, many parents intend to bear the brunt of college expenses, planning to cover 51 percent of college costs with their own savings and parental loans. They expect their child to take on approximately a quarter (23 percent) of the expenses and estimate another 19 percent will be covered by scholarships.

For many, this commitment may be influenced by their own experience managing debt. Thirty-seven percent of parents with kids in high school report they are still paying down their own student loans; that percentage skyrockets to 68 percent for parents of kids in preschool or younger.

To help do their part, nearly half (48 percent) of parents saving for college are doing so in a tax-advantaged 529 plan, with those contributing regularly saving a median of $300 each month. Almost all (93 percent) believe that saving in a dedicated college account helps keep them on track as they work toward their college goals. Overall, 529 plan owners report having accumulated an average of approximately 50 percent more in their college nest egg than those who are saving, but not using a 529 plan ($32k vs. $21k).

Keywords for this news article include: Education, Student Loans, Fidelity Investments, Financial and Investment Companies.