The amount that families are able to save for college is beginning to rebound from the economic recession, according to a study released Thursday by Sallie Mae and Ipsos. The study, "How America Saves for College 2014," surveyed 2,020 parents with a child under the age of 18 and found that families' overall savings have increased 7 percent from last year and that 51 percent of families have established college savings funds.
According to the report, the average family college savings jumped from $11,781 in 2013 to $15,346 in 2014, but the uptick doesn’t mean that low-income families are better off savings-wise than they were before. The percentage of low-income families saving for college has remained the same between this year and last, however the value of those savings has declined. Therefore, the 30 percent savings increase can be attributed to an increase in the value of college savings held by middle- and high-income families, the report said.
Eighty-nine percent of survey respondents agreed that college is a valuable investment in their child's future, with 90 percent of parents who are currently putting money aside for college reporting a willingness to stretch financially in order to help their child pursue a college education. Of those not currently saving for college, only 70 percent expressed the same willingness. Current savers were also more likely than non-savers to believe that getting a college degree would help their child eventually earn more money, with the two groups coming in at 89 percent and 77 percent, respectively. And despite extensive discussion in the media of late over college costs and value, 70 percent of those currently saving for college indicated they would send their child to college regardless of whether it increased their future earning potential, with 51 percent of non-savers reporting the same.
As has been the trend in previous years, the most popular way to save for college is to use a general savings account, though 57 percent of families reported using more than one method to help save. Of the families that are already putting money aside for college, 29 percent are using 529 plans and 13 percent are using Coverdell Education Savings Accounts (ESAs), survey data shows.
The families with children under the age of 18 who are not putting money aside for college are more likely to be from a low-income background, as evidenced by the fact that 58 percent of these families say they're not saving because they don’t have enough money to do so. Other common reasons parents in the study gave for not saving included thinking their child would qualify for enough financial aid or scholarships to cover their costs, focusing on other saving priorities, or simply because they haven’t gotten around to it.
Even for those who aren't putting money into savings at the moment, creating a plan to defray college costs—researching college costs and financial aid, investing in a child’s skills to increase his/her chances of winning scholarships, and enrolling in AP courses in high school to earn college credits— can help parents to feel more prepared, the report said. Sixty-nine percent of parents who had started the planning process reported feeling confident in their ability to meet college costs versus 25 percent of parents who have not yet begun to plan.
Those without a plan in place anticipated having 36 percent of their child’s college expenses to be paid by grants and scholarships and 22 percent to be paid by student loans, compared with the planners who expected grants and loans would make up 26 percent and 12 percent, respectively.
Publication Date: 4/11/2014