WASHINGTON, Aug. 14, 2012 /PRNewswire/ -- More parents are saving for their children's college education this year over last, and more are using 529 college savings plans to do so, says the sixth annual State of College Savings Survey of 800 parents across the country. www.collegesavingsfoundation.org
The survey found that 45 percent of parents had saved more than $5,000 per child – up from 40 percent last year and the highest level since 2007, when 49 percent had saved that much. The majority of these savers also use 529 college savings plans, where earnings grow Federal income tax free when they are withdrawn for college tuition and other qualified higher education expenses.
"Parents are committed to saving for their children's future and are using sound strategies to reach their goals," said Roger Michaud, Chair of College Savings Foundation, a leading nonprofit helping American families save for their children's college education.
529 college savings plans are assuming a greater role in parent saving. Roughly one-third (30 percent) of parents surveyed own a 529 college savings plan, up from 24 percent last year, and those who do cite tax-free benefits and the cost of college as leading motivations.
Despite this uptick in parent saving, students are being pressed to contribute more than they have in the past: 69 percent of parents expect their children to contribute financially, up from 62 percent last year. The most popular way to help with college costs? Forty-three percent of parents say, "Get a job."
The cloud of debt also looms far over the students' futures: 69 percent of parents expect that they or their children will be paying loans off for at least five years after graduation.
Nearly half, 49 percent, of parents anticipate that they or their children will take out education loans to finance some portion of college; and 41 percent expect education loans to be their number one source of financing, with an emphasis on student loans.
While most parents – 88 percent – said that it was Very Important or Important that their children attend college, one in five (20 percent) of all parents said they could not afford a four-year private school.
These concerns show up in parents' lack of confidence in their ability to reach their college saving goals: only 32 percent are Completely or Very Confident; and only 30 percent say they know how much they will need to save to get there, down from 34 percent last year.
However, the survey uncovered successful strategies for shoring up confidence and savings. Those with financial advisors (32 percent) seem to have a leg up on both: 65 percent of them have saved more than $5,000 per child, versus 34 percent of those without. Those with financial advisors are also twice as likely to have confidence in meeting their saving goals: 42 percent are Completely or Very Confident, versus 26 percent of those without an advisor. Additionally, 56 percent of 529 owners have utilized a financial advisor.
In light of increasing costs and importance of college decisions, advisors are helping families plan for college early, with 92 percent of parents that use advisors having the conversation in advance of the college selection and application process.
Parents owning 529 college savings plans are also dramatically more successful savers than those without a 529:
- 21% of 529 owners have saved between $5,000 – $10,000, almost double the 11% of those who don't own a 529.
- 22% of 529 owners have saved between $10,000 - $25,000 as compared to only 9% of those without a 529.
- 18% of 529 owners have saved between $25,000 - $50,000 per child, versus only 4% of those without a 529.
- 11% of 529 owners have saved between $50,000 - $100,000 versus 3% of those without a 529.
- 17% of 529 owners have saved more than $100,000 per child versus 2% of those without one.
In contrast, parents without a 529 plan are the least effective savers with nearly half, 49 percent, saving nothing at all.
"Saving early and often, even if parents start with a small amount, will offset the burden of student debt," Michaud points out.
The survey surfaced other parent strategies for paying for college:
- 24% of parents have an automatic savings account.
- 24% would ask family or friends to contribute to college instead of material gifts.
- 61% anticipate some kind of financial aid, including 31% covering up to one-third of college costs.
- Of the 69% of parents expecting their children to contribute, 46% want them to cover up to one-third of college costs; 13% between and third and two-thirds, and ten percent over two thirds of the cost of college.
Parents believe they need to focus on financial literacy with their children: 76 percent take the time to do so. They are also talking to their children about the costs of college: 59 percent of parents are doing so; and 55 percent have talked with them about their involvement in paying for college.
The survey was conducted by Zoomerang of over 800 parents of college-bound children from across the country and income levels.
College Savings Foundation is a national nonprofit leader in helping American families save for their children's college education.
SOURCE The College Savings Foundation