Saving for college: nearly 8 in 10 parents say it’s harder than expected
With tuition fees higher than ever, it’s no surprise that parents are struggling to save for their children’s college education. In fact, the situation is bad enough that less than a third of parents believe they will have enough to cover school fees, according to a new Student Loan Hero survey.
After polling over 500 parents who are currently saving for college for one or more children, we found that the vast majority are going through a more difficult time than they thought, with almost half wishing they had saved more.
Find out how these parents cope with the challenges of saving for higher education, although many are repay their own student loans.
- Almost 8 in 10 parents say saving for their child’s education is much more difficult than expected.
- 43% of saving parents feel guilty about not having been able to save more for their child’s education.
- Almost 36% of saving parents are currently paying off their own student loan debt while trying to save for their children’s education.
- Almost 57% of parents plan to help their children pay off their student loans.
- 39% of parents say saving for their child’s education is a higher priority than saving for retirement (17%).
- For 57% of parents, their financial support comes with conditions.
Majority of parents say it’s harder to save than they expected
For the vast majority of saving parents, guilt is a familiar feeling as they prepare to send their child to college. Among respondents, nearly 79% said saving for their children’s education was much more difficult than they expected.
For some parents, part of the problem might be set unrealistic goals. 1 in 5 parents put money aside for their child’s education plans to save more than $ 50,000, but the vast majority of savers (59%) have currently only saved $ 10,000 or less.
Overall, only 28% of parents believe their savings will be enough to cover their child’s school fees. Although many parents have lofty college savings goals, it is difficult for them to meet them.
Almost half of saving parents feel guilty about not saving more
Failure to meet college savings goals causes many parents to feel guilty.
Among the respondents, 43% feel bad that they were not able to save more for their child’s education. Moms feel a little more guilty than dads about their lack of college savings (46% vs. 40%).
And those whose parents didn’t help them pay for their college education are more likely to feel guilty than those who got help (48% vs. 36%). These parents want to offer their children the financial help they did not have, but are struggling to keep up with today’s tuition fees.
Most parents rely on savings, money rather than a 529 plan
For parents, savings accounts are by far the most common method of saving for college, with 73% using them for their child’s education costs. Other tools used by parents include cash (23%), savings bonds (17%), and 529 plans (16%).
As tax-advantaged accounts, 529 packages are useful vehicles for saving for college, but only a small number of families have access to them. And more than one in five parents are simply saving money, which means those savings could lose value over time due to inflation.
Parents struggling to meet their savings goals should look to 529 plans, which allow your money to grow tax-free over the years, or prepaid tuition plans, which allows you to lock in future tuition payments at today’s lowest rates.
Almost a third of parents are considering a personal loan to cover school fees
Since many parents don’t think their savings will fully cover the costs of college, they look for alternative methods to close the gap. In fact, 69% of parents plan to go beyond their savings to help pay for their education.
Among the respondents, 32% plan to take out a personal loan, 21% intend to co-sign a loan on behalf of their child, 19% say they will use a credit card and 17% plan to take out a Parent PLUS loan. Personal loans and credit cards probably have much higher interest rates than student loans, so most parents should educate themselves. private student loans or Parent PLUS loans before considering these alternative options.
Those whose parents helped them pay for their college education are particularly likely to consider other methods of paying for their education, compared to those who were alone. For example, 25% of parents who got help from their families would consider Parent PLUS loans, compared to just 13% of parents who paid for their college education on their own.
More than a third of parents also pay off their own student debt
With nearly 45 million Americans with $ 1.56 trillion in student loans, it’s no surprise to learn that many saving parents are paying off their own student loans as well.
Having experienced the challenges of debt repayment first-hand, nearly 4 in 10 parents want their child to avoid taking on student debt at all costs. Another 50% don’t like the idea but know it’s a possibility.
If their children were to take out student loans, 57% of parents say they would help them repay, and 34% would. This could mean that many parents end up with the double challenge to repay student loans for themselves and their children.
39% of parents prefer saving for university rather than retirement
when we savings parents surveyed last year, 44% said they prioritized saving for retirement over saving for education. But this year, that number fell to just 17%, while 39% said saving for their child’s education was the top priority (up from 37% the previous year).
This was a big change, and perhaps it has something to do with greater national awareness of the student debt crisis. Our survey also found that nearly half of parents (47%) would “definitely” consider dipping into their retirement savings to cover a child’s school fees.
Parents appear to be highly motivated to help their children pay for their education and even repay their loans, but depleting their retirement savings to do so could threaten their own financial well-being in the future.
For many, financial support comes with conditions
While many parents plan to help their children pay for higher education, their help is not always free. For 57% of parents, financial support comes with certain conditions.
Of the respondents, 39% say their child needs to get good grades in return for their financial aid, 18% want their child to attend school in the state, and 17% say their child will need to find a job during their time. studies.
How parents can save for their child’s college
Choosing how much to support your child in college is a personal decision that depends on a number of factors. But if you’re trying to save, find the best way that will work for your own situation.
While a savings account or certificate of deposit (CD) is an easy place to park your money, you won’t see huge gains over the years. For better returns, as well as tax benefits, look for a 529 account. Your after-tax contributions could grow much faster than with a CD, and like a Roth IRA, you won’t have to pay taxes when you withdraw. money.
Prepaid tuition plans can also be a useful option, as they allow you to lock in current tuition rates at public colleges. But of course, they wouldn’t be as useful if your child decided that they didn’t want to attend the school for which the prepaid tuition plan applies.
If you need extra money to pay for your education, try using student loans instead of personal loans or credit cards. Student loans tend to have lower rates, and many come with flexible loan terms.
Although you should always avoid borrowing too much, a reasonable amount of student loans can be a useful tool in filling a funding gap. Just be sure to read all of the terms and conditions before signing any documents, so you understand exactly what financial commitment you or your child is making.
And be sure to shop with multiple lenders, you will be able to find a student loan at the best possible rates.