More Families Are Saving for College, But They Aren’t Saving Enough: Fidelity
According to a new Fidelity report on close to 1,800 parents of children age 18 and younger, surveyed between June 5 and July 2, 78% are saving for their children’s college education, up from 70% in 2018, though 71% are concerned about the pandemic’s impact on those savings.
Almost all (77%) of the parents surveyed agree that a college education is worth the cost, but 36% said they will prefer a less expensive school if distance learning, which predominates on and off today’s college campuses, becomes more common.
“The pandemic college experience — which may mean learning virtually — is likely not what students and parents initially planned for when they began saving,” said Melissa Ridolfi, vice president of retirement and college leadership at Fidelity Investments, in a statement. ”While this new environment has many reconsidering where and how they use college savings, parents continue to recognize the value of a college education.”
Close to half the parents surveyed (48%) have opened a 529 savings plan, which is an all-time high for the survey series, and almost two-thirds of families working with financial advisors have 529 college savings plans. These plans are a particularly attractive way to save for college because their assets grow tax free, and withdrawals from the plans are tax free so long as the funds are used for qualified education expenses. In addition, some states allow state tax deductions for deposits.
Despite the growing popularity of 529 plans, families aren’t saving enough to achieve their college savings goal, according to the survey.
Families with 529 plans are on track to cover just 46% of their college savings goal, which is twice the 24% coverage for parents without a 529 plan and 33% for parents generally, according to Fidelity’s College Savings Indicator, a national measure of parents’ overall preparedness to pay for college.
The latest CSI shows that 64% of parents expect to pay a portion of their children’s college education, down from 66% in 2018, while 33% expect to pay all of their children’s higher education costs, up from 29% from 2018, reflecting perhaps the 2017 law that cut taxes for higher income taxpayers as well as for corporations.
According to the Fidelity report, parents start saving for their children’s college education when their children on average are 5 years old. The median amount saved is $20,000, but families working with a financial advisor have saved a median $25,000.
Parents participating in the survey live in a household with an average income of $114,000 and two children. Seventy-five percent were married, and an equal percentage had graduated from college.