A great disparity exists between how much children think their parents will contribute to their college education and how much parents are able to do so, new research by T. Rowe Price found.
Student loans in many instances can lead to more anxiety and financial stress on parents.
MetrixLab in February surveyed 1,086 parents with children eight to 14 years old, and an equal number of children in that age group.
Sixty-two percent of children in the survey agreed with this statement: “I expect my parents to cover the cost of whatever college I want to go to.”
In reality, 35% of parents said they would be able to pay for at least most of college costs, and just 12% said they would be able to pay the entire cost.
Two-thirds of children thought their parents were saving for their college, but nearly a quarter of those had parents who said they were not.
Sixty-three percent of parents acknowledged that they felt guilty about not being able to pay more for their children’s college, and 42% said they lost sleep worrying about college costs, up from 28% in 2014 in a T. Rowe Price study.
Seventy-six percent of parents in the poll said they would willingly delay their retirement and 68% would take a second or part-time job to pay for their children’s college education.
Call it denial, or perhaps lack of research, but only 35% of parents in the study understood that the total cost of a four-year college education at an in-state school was $80,000 or more, a figure researchers used based on College Board data.
Student Loan Albatross
For many parents, student loans are an added source of anxiety and financial stress.
Twenty percent of surveyed parents reported that they were paying back student loans for their own education, and 12% were doing so for their children’s education. Five percent were shouldering both burdens.
The poll found that 67% of parents who were paying off student loans from their own education had credit card debt, compared with 54% of parents who were not so burdened, and 19% had payday loans, compared with 7%.
Those parents who were paying back loans for their children’s education were even likelier to have credit card and payday loan debt—75% vs. 54% and 38% vs. 5%.
Fifty-seven percent of parents said they were willing to borrow $25,000 or more to pay for their children’s college education, with 19% willing to borrow $100,000 or more.
Nearly half of parents said they would allow their children to take on student debt of $25,000 or more, with 14% would let them borrow $100,000 or more.
Twenty-four percent of parents who were paying back their own student loans said they were willing to borrow $100,000 or more themselves to pay for their children’s college. “The benefits of a college education can become overshadowed by the burden of debt, if parents haven’t saved towards a college education and had money conversations with their kids to manage expectations of how much of their college costs they can cover,” Judith Warda, senior financial planner at T. Rowe Price, said in a statement.
“It’s surprising that most kids expect their parents to cover whatever college they want to go to — and presents a real opportunity to discuss family finances and make sure everyone is on the same page.”
Saving for College
Most parents in the survey were saving for their children’s college education, though some were not going about this in the best way, according to T. Rowe Price.
Fifty-eight percent of parents polled said they had saved money for their children’s college education, but only 54% said they had money saved for their retirement.
Two-thirds of parents thought that saving for college education should start when their children were 10 or younger, including 28% of parents thought saving should begin at age one.
However, a fifth of parents maintained they should wait until their children’s teen years to start saving for their college education.
Thirty-seven percent of parents in the study were using tax-advantaged 529 college savings accounts, according to T. Rowe Price, which manages such plans.
In contrast, 43% of parents were using a regular savings account, and 27% were using a retirement account or IRA.
Forty-two percent of both baby boomer and Gen X parents were saving for their children’s college in a 529 account, compared with 22% of millennial parents.
The survey found that parents who used 529 accounts were less likely to spend college savings on other things.
Common reasons cited by those taking money out of college savings:
- Paying for vacation—13%
- Health care—12%
- Home repair or renovation—12%
- Paying off debt—12%
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