Boomers are saving modest amounts toward their children’s higher education and are counting largely on loans to make up the difference between savings and actual college costs, recent research shows.
One study by Fidelity Investments, Boston, finds parents who have started 529 college savings plans for their kids set aside far more than do parents who don’t have such a plan. 529 plans allow earnings to grow tax-free if funds are used for higher education.
Some 80% of parents in Fidelity’s survey had at least one child over 13, with 95% having at least 1 child under 13 (74% had more than one child). Average family income for those in the study was $79,000.
Parents working with a financial advisor are saving more significant sums for their kids’ education than are those who don’t seek such expert help, Fidelity found.
Nationally, parents project they will meet an average of only of 24% of their children’s college education, including tuition, fees, and room and board, according to Fidelity’s College Savings Indicator study. Parents who have set up 529 plans, however, are on track to saving 52% of their children’s college costs.
Fidelity bases its estimates on an asset-liability model it developed, which it used to analyze data from parents on their current and projected asset levels, including college savings.
Parents in the study expected an average 18% of the total cost of college would be covered by student loans. That could be a huge burden, Fidelity notes. With an average college education costing $100,000, and assuming an average 10-year repayment at a hypothetical 7.5% interest rate, the total cost of such a loan could exceed $25,000, Fidelity calculates.
Parents expect their child to pay for an average of 26% of their own education through savings, income from work while in schools and student loans. Apparently, parents didn’t think it wasn’t such a bad idea to have their kids pay a big share of college costs: 79% agreed their children would appreciate the value of college more if they helped pay for it.