How Americans Save For College
The vast majority of today’s parents with children under the age of 18 continue to believe wholeheartedly that college is an investment in their children’s future. Nine in 10 parents expect their child will eventually attend college and benefit from an array of opportunities that result from a college education.
Despite their commitment to sending their children to college, parents are struggling to some degree with preparing to pay for future college costs. While one-quarter of parents consider saving for college as “doing the right thing,” equal proportions of parents feel overwhelmed, frustrated and worried at the thought of saving for college.
Similar to the findings of the past two How America Saves For College studies, about half of parents with a child under age 18 are saving for college. Sixty-two percent of those parents say they are saving the same amount for college as they had last year, and another 27 percent say they are saving more. Parents who are saving for college continue to earmark approximately 10 percent of their total savings for college, but the amounts they are saving overall declined, and the amount they set aside for college dropped to the lowest level in three years. The average amount saved for college is $10,040.
About half of the families saving for college are using general savings accounts. These families could be missing out on the potentially higher yields that may be available from other types of savings vehicles, such as 529 college savings plans or investment accounts.
Four in 10 parents are confident they will be able to meet the future costs of college. Notwithstanding the depressed savings results, confidence is nearly three times higher among parents who are saving for college (63%) than those not saving for college (23%).
Each family has its own strategies for planning how to pay for college and for being successful savers. Some set monetary goals while others focus on process. Some of the various strategies parents are increasingly adopting include:
• Concentrating all of their college savings in a single savings instrument (69%)
• Automatically depositing funds into a college savings account (41%)
• Allocating a specific amount for college each pay period (31%)
• Using online tools and calculators to help estimate college costs or savings goals (26%)
• Reducing personal spending in order to contribute more to college savings (26%)
Families who save for college have differing views from families who are not saving for college regarding resources to be used to pay college costs. Families who are saving anticipate that combined savings — parent, student and extended family contributions — will cover 56 percent of college costs, scholarship or grant money will cover 23 percent of costs, and loans will pay the remaining 22 percent. Families who are not saving for college anticipate that only 39 percent of costs will be paid from savings, scholarships or grants will pay for 35 percent of costs, and loans will pay 27 percent.
Correspondingly, among families who have discussed paying for college with their child, those saving for college are more likely to have talked about using parent and student savings to pay, whereas families who are not saving for college are more likely to have talked about scholarships, student loans, and work-study as ways to pay.
Families not saving for college primarily point to lack of funds as the reason for not saving (61%). While about 4 in 10 expect that they will begin saving within the next five years, the majority of those not currently saving for college have no plans to begin.
1 Sallie Mae and Ipsos (2014), How America Pays for College 2014