Study Confirms Need for College Savings, Role of 529 Plans

The American dream of college is alive and well - but could slip beyond the reach of many families, according to the results of a recent nationwide survey released by New York-based OppenheimerFunds.

Ninety percent of 1,000 parents of pre-college age children surveyed say they view sending their kids to college as an essential part of the American dream -- on a par with having a comfortable retirement or owning your own home.

Slightly more than eight of 10 (81 percent) say that sending their kids to college is an achievable goal, more than half of parents at least somewhat agreed that college is not as achievable today as it once was, and six in 10 strongly believe that if tuition costs keep skyrocketing, college will be unaffordable for most families.

"Despite rising costs, diminished financial resources and the toughest economic climate in decades, the dream of college strongly endures for American families," explains Donna Winn, president and CEO, OFI Private Investments Inc. "At the same time, good intentions won't be enough," she says. "In far too many families, there's a disconnect between college hopes and financial realities."

The survey reveals that while many parents are reluctant to take on college debt, college savings are well below projected costs. Many parents also assume that scholarship money will pay for a large part of their kids' college costs.

"Saving for college is one of the biggest financial challenges any family can take on," Winn adds. ""At OppenheimerFunds, we take very seriously our responsibility to help parents plan well for college - and become effective savers and investors to meet college costs."

Costs Remain Significant Concern
More than half (51 percent) of those surveyed say that family finances will be more of a limiting factor than academic performance on their kids' ability to get a quality college education. The same number say it's very likely they or their kids will have to borrow money for college.

The issue is not likely to go away. Encouragingly, though, hard times and rising costs notwithstanding, many parents are still saving for college. Asked about their college savings behaviors amidst the recent economic slowdown, American parents generally have not put saving for college on hold (60 percent), have not reduced the amount they are saving for college (60 percent), and have not withdrawn funds from a college savings plan (92 percent).

More than three-quarters (77 percent) of Americans with pre-college age kids, however, have saved less than $20,000 for their children's college expenses; 62 percent have saved less than $10,000, and 43 percent have saved less than $5,000. Twelve percent have saved nothing at all.

According to the College Board, about two-thirds of all full-time undergraduates nationally receive grant aid. In 2008-09, aid in the form of grants and tax benefits averaged about $3,700 for in-state students at public four-year colleges, compared with an average annual total cost of $14,333, and about $10,200 per student at private four-year colleges, compared with an average annual cost of $34,132.

The college cost equation has become even murkier in recent years, as parents have come to understand the crippling effects of too much college debt. Nearly 80 percent say they want to cover 50 percent or more of their kids' college expenses - 24 percent say they want to cover the full amount.

The College Board estimates that average total debt was about $22,700 for the approximately 60 percent of 2006-07 bachelor's degree recipients who graduated with debt.

"In recent years, parents have come to understand that college loans are an undesirable option, burdening graduates with debt that can take decades to pay down," Winn explains. "That's all well and good - the problem is that many parents aren't replacing over-reliance on debt with an increase in personal savings.

"The ramifications are clear: As college approaches, many parents are likely to discover that college costs far outstrip their financial resources," Winn notes. "Parents committed to college need to begin saving as early as they can, as much as they can, and to stick to their savings strategy as long as they can."

529s Help

For many Americans, Section 529 college saving plans have emerged as an excellent way to save and invest, as contributions grow tax deferred and withdrawals are federal tax free when used for qualified expenses, according to OppenheimerFunds.

Parents who have used 529 plans are twice as likely as those who have not (31 percent vs. 16 percent) to have saved at least $20,000 for their kids' college education, and more likely to say they plan to cover 50 percent or more of their kids' college expenses (90 percent vs. 75 percent). And, parents who have used the plans are less likely to say that the high cost of college has discouraged them from saving (12 percent vs. 30 percent) or that family finances will be more of a limiting factor than academic performance for their kids' ability to get a quality college education (40 percent vs. 55 percent).

While 61 percent of those surveyed are at least somewhat familiar with college savings plans, usage is still relatively low; only about one in four (24 percent) of parents say they have used a 529 plan.

"Our poll suggests that many Americans may be well advised to consider 529 plans," Winn explains. "The plans can help to support more effective college savings and bolster college hopes."

For parents seeking help with college savings strategies, OppenheimerFunds has launched an educational Website, www.collegewithinreach.com.

The OppenheimerFunds poll was conducted via telephone between February 2 and 26, 2009 by the national polling firm Mathew Greenwald & Associates.

For research on College Board finds, go to:
www.collegeboard.com/parents/csearch/know-the-options/21385.html;
http://professionals.collegeboard.com/profdownload/trends-in-college-pricing-2008.pdf, and
http://professionals.collegeboard.com/profdownload/trends-in-student-aid-2008.pdf.

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