Hey, kids! Start saving your lawn-mowing or babysitting money. As the cost of higher education skyrockets, the amount parents are contributing has shrunk significantly since the pre-recession years. According to Fidelity Investments’ fifth annual College Savings Indicator, today’s parents are on track to cover only 16 percent of their kids’ college costs, down from 24 percent when the study was first conducted in 2007. That 16 percent is the same percentage Fidelity found in its 2010 study, so the silver lining is that the decline seems to have stopped, at least temporarily.
Fidelity estimates that a four-year stint at college costs $141,543 in total expenses now — and that number is projected to rise by more than 5 percent every year. The good news is that more parents are saving for college today — 67 percent versus 58 percent five years ago — but what they’re saving just isn’t keeping up with the rising cost of college along with other financial obligations families face in a tough economy.
In a telling example of just how much college costs have skyrocketed in recent years, Fidelity says 40 percent of parents of preschool-aged kids had started a dedicated college fund — even though 60 percent of those people are still paying off their own student loans. “You’re seeing more of these parents start to save in the preschool years,” says Joseph Ciccariello, vice president of Fidelity Investments College Planning. “They don’t want to saddle their son or daughter with the same debt,” he says.
Parents are taking on additional sacrifices, too; a growing number of parents say they’ll take a job (if they didn’t work outside the home previously) or get a second job to help defray the cost of higher education. “The need to save for college is significantly changing people’s lifestyles,” Ciccariello says.
At the same time, parents are expecting their kids to be more involved in managing their college expenses these days. The Fidelity data highlights a trend toward shared accountability, Ciccariello says. The percentages of parents encouraging their children to live at home and commute to school, go to a public college instead of a private one, work part-time or help pay for college have all gone up by 10 percentage points since 2007. Roughly two-thirds require their kids to keep their grades up to an average GPA of 3.1.
Ciccariello says dedicated accounts like 529 plans can help parents save; some investment products even operate like the target-date funds people use in their 401(k)s, shifting to a less-volatile mix of assets as the time to start writing those tuition checks draws closer.