Savings Surges In Popularity Among Parents Funding College, Says College Savings Foundation's Survey Of Parents

WASHINGTON, Aug. 7, 2013 /PRNewswire/ -- Saving for college has moved to the head of the class as a key planning strategy for parents trying to cope with the ballooning cost of college.  Considerably ahead of loans, scholarships and aid, or current income, savings was the number one way that parents plan to pay for their child's education, according to the College Savings Foundation's Seventh Annual State of College Savings survey of nearly 1,000 parents across the country and income levels.  For charts and full release, see www.collegesavingsfoundation.org

529 college savings plans took the lead among savings choices, with 37 percent of parents using them, up 8 percent from the 29 percent using them in 2012.  This year, 29 percent of parents said that 529s were their primary college savings vehicle, up from 24 percent the year before.

"With over 15 years in the marketplace, 529 college savings plans are now coming of age.  We are seeing a strong upswing in awareness among parents about the need to save and their choice of 529s as the most advantageous way to do so," said Roger Michaud, CSF Chair. 

The survey saw the highest percentage of parents saving since it was first launched in 2007: 55 percent of parents are saving, up 13 percent from last year.  At the same time, they are saving greater amounts:  53 percent have saved at least $5,000 per child for college, up 8 percent from last year and the highest level in seven years. 

Savvy habits – like starting early and saving consistently – seem to be contributing to this increase.  In a question that allows parents to check when they started saving for each of their children, 30 percent of parents said they started when a child was 1-5 years old, up 8 percent from last year; 17 percent started when a child was 6-10 years old, up 7 percent; and 26 percent started saving when a child was born, off one percent.

Likewise, more parents, 35 percent, had automatic savings accounts, up 11 percent from last year; and 40 percent of those are saving between $101-$300 per month, up 8 percent from last year.

"Saving early and often is the mantra for successful savers," Michaud said. "At the same time, we saw a greater realism among parents about what it takes to fund a college education. They seem determined to pull on a variety of resources, including their children's contributions, to get to this worthwhile goal." 

Three quarters of parents expect their children to contribute to college costs:  45 percent expect them to help with up to one-third of the costs, and nearly 20 percent expect help with between one-third and two-thirds (an increase of 7 percent); with 10 percent expecting help with over two-thirds of college costs.

How will they contribute?  By getting a Job (44 percent); through Scholarships, Grants, or Fellowships (25 percent); Loans (12 percent) and child's Own Savings (11 percent), plus Military Funding and Other.

Above all, college is a priority for parents:  76 percent said it was very important for their child to attend college if they want to. 

Asked about the primary way that parents plan to pay for their children's college costs, the clear majority, 43 percent, said Savings.  Grants/Scholarship/Direct Aid was next with 25 percent.  Loans/Borrowing followed with 16 percent, and Current Income came in at 11 percent.  (Other claimed the remaining 6 percent.)

In fact, more parents – 65 percent – expect financial aid to help with college this year than last year's 61 percent, with 36 percent expecting financial aid to cover up to one-third of college costs; 18 percent to cover between one-third and two-thirds, and 11 percent to cover over two-thirds.  Of those expecting financial aid, 82% expect it to come in the form of Grants and Scholarships.

"One blind spot that most parents have is a reliance on grants and scholarships to fulfill a large chunk of college costs," Michaud said.  "In reality, they are more likely to get financial aid in the form of loans."

Parents' expectations of debt service fell slightly:  66 percent expect to take at least five years to pay off the college tuition and costs funded through loans, down from 69 percent last year. 

The vast majority, 82 percent, think tax incentives for parents and grandparents should continue, up 10 over last year; and 84 percent do not think students should ever be taxed or otherwise penalized on 529 distributions.

The College Savings Foundation State of College Savings survey of 980 parents of children 18 or under, from across the country and evenly across income levels.

SOURCE The College Savings Foundation