According to data from the College Board forecasted by NerdWallet, the average cost of tuition for kids born in 2015 who attend a private four-year college 18 years from now will be $US261,793.
For those kids attending a public four-year college, it will be $US133,528.
No wonder some parents start thinking about paying for college before their children are even born.
In its latest report, How America Saves for College 2015, student lender Sallie Mae and market research company Ipsos surveyed nearly 2,000 American parents with at least one child under the age of 18 to find out how families are thinking about and preparing for college costs.
According to the report, nine out of 10 parents surveyed expect their children will attend college, and about the same percentage consider college to be an investment in their child’s future — but their levels of preparation don’t exactly reflect that fact.
Although the majority of parents expect their kids will attend college, only 57% are actively planning or saving for that time.
Sallie Mae defines “planning” for college as creating a plan to guide the family’s saving over the years, and “saving” as the act of actually setting the money aside — and 43% of parents aren’t doing either.
“Families who are saving for college and have developed a plan to pay for college have saved, on average, $US11,102 ― 46% more than the average amount of $US7,611 saved by families without a plan,” the report reads.
Many parents aren’t saving for college because, strapped for cash, they aren’t saving at all — but two-thirds of parents surveyed said they aren’t saving for college because they’re relying on these alternate sources of funds.
In fact, 43% of parents not saving for college plan on tuition assistance such as government grants, scholarships, and financial aid covering more of their child’s costs than parents who are saving for college.
The College Board says the average amount of aid per student was about $US14,000 a year for the 2013-2014 school year, and the 2014 version of this Sallie Mae report found that students received the equivalent of one-third of a year’s tuition between scholarships and grants, on average. Knowing this, parents’ expectations of outside assistance may be too high.
On the bright side, most parents are dedicating about the same percentage of their savings, or more, to their children’s college funds as they were last year, as shown in the chart below.
This money is saved using a variety of methods: regular automatic deposits, setting aside “a goal amount every pay period,” and designating a percentage of bonuses and tax returns.
However, savings rates overall are down from last year (not including retirement funds), meaning that although families are allocating the same percentage of their savings to college, they’re actually setting aside a lower dollar amount. Only 45% of parents surveyed have set an ultimate goal for these savings.
Plus, the most common savings vehicle these families are using is a general savings account. General savings accounts are known for earning extremely low rates of interest (a “high interest” savings account tends to be around 1%), and arguably, the only choice less advantageous is a checking account — the third most popular option.
Both checking and savings accounts pale in comparison to options where the money is invested and can grow considerably, like a state-sponsored 529 savings plan.
Encouragingly, 529s are the second most popular vehicle.
More than two-thirds of families saving for college use only one savings vehicle.
Overall, the report concludes, parents value college much more than their savings choices let on.
Despite the discouraging patterns of parents not saving, or saving money in less-than-optimal accounts, there is something any parent can do to ease the costs of college: Plan for it.
“Parents with plans have saved 31% more than those without plans,” the report reads, “and they are three times more confident that they will be able to meet the cost of college.”
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