Parents are on track to cover only 16% of their children’s college education, Fidelity Investments’ 5th Annual College Savings Indicator study shows. In the study’s five-year history, this is the first year that the indicator’s steady decline has come to a halt, at 16%.
In 2007, when Fidelity first launched the study, parents were on track to cover 24% of the cost of their children’s higher education. Fidelity attributed part of the reason for the decline to tuition costs, which have risen 26% in the past five years.
To meet these costs, parents are resorting to a wide array of solutions, ranging from asking their children to work part-time (59%), assume student loans (46%), live at home and commute (48%), attend a public university (44%) or graduate in fewer semesters (28%). Eighteen percent of parents with a non-working spouse are having that parent go back to work, and 17% of parents are taking on a second job.
Despite these measures and the fact that many parents are saving less, more are springing into action, with 67% saving for college, up from 58% in 2007.
The Fidelity study also found that awareness of 529 plans remains unchanged from 2010 at 51%, although it is up significantly from 40% in 2009. Thirty-seven percent of parents are saving through a 529 or other dedicated college savings account, up from 26% in 2007. Further, fewer parents, 27%, are saving in a non-dedicated college savings account than last year, when 33% were doing so.
Additionally, 66% of parents are requiring their child to maintain a grade point average of at least 3.1 out of 4.0.
And 33% of parents are working with a financial adviser to help them with their college savings decisions, up from 21% in 2007. These professional partnerships appear to be paying spades for these parents, as they are on track to cover 31% of total college savings costs, compared to the 16% average for the typical American family. Sixty-two percent of parents working with an adviser believe they are closer to meeting their college savings goal than they would be without their help.
“Families are planning earlier and saving more efficiently, yet with college costs increasing 26% in a five-year period, saving for college will continue to be a challenge,” said Joseph Ciccariello, vice president, Fidelity Investments College Planning. “Working with an expert to map out a savings strategy early -- and setting up a dedicated account like a 529 plan -- can help parents better prepare for rising college costs.”