Worried About the Stock Market, College Savers Opt for Safety, Survey Finds

Savings Dilemma: Keeping pace with rising tuition while limiting risk

Nov 02, 2010, 09:32 ET from Tuition Plan Consortium

ST. LOUIS, Nov. 2, 2010 /PRNewswire/ -- Given concerns about stock market performance, Americans are growing increasingly anxious about their ability to achieve their college savings goals, finds a new survey by the Tuition Plan Consortium, a national group of private colleges and universities that sponsors the Private College 529 Plan(SM).  Market skepticism is driving college savers to opt for investments and savings vehicles that carry less risk, such as CDs and money market funds, or that offer guaranteed returns, such as pre-paid plans, according to the survey.

Following a decade during which the S&P 500 Index produced a negative annualized return(1), college savers are cautious about investing in the stock market to reach their savings goals.  The survey found that half (50 percent) of those saving for a college education do not believe the stock market will provide the returns needed over the next ten years to enable them to achieve their college savings goals.  This compares to 32 percent that believe the market will produce desired returns.  

"College savers are skeptical about putting their money in equities," said Nancy Farmer, President of the Tuition Plan Consortium.  "People are turning to lower yielding investment vehicles in a search for safety, but there is significant risk that such investments will not get them to their savings goals."

Search for Safety

The survey found that despite the fact that the S&P 500 Index has produced an annualized return of nearly 9.5 percent over the past 50 years(2), 73 percent of college savers would rather receive a guaranteed return that offsets increases in tuition than rely on the stock market to produce higher returns.  Only 13 percent of respondents indicated they would rather attempt to beat the recent college tuition inflation rate of 6.5 percent by investing in the stock market.

"Given historically low interest rates, now is a very challenging time for college savers who are seeking safety from equities," said Ms. Farmer.  "Pre-paid savings plans, such as Private College 529 Plan, offer an attractive alternative for college savers who do not want to rely on the stock market to meet their savings goals and want to hedge against tuition inflation by locking in a guaranteed rate of tuition."  

For more information about the guaranteed Private College 529 Plan, visit www.privatecollege529.com.

About the Survey

The survey was conducted by telephone among a national probability sample of 1,008 adults comprising 500 men and 508 women 18 years of age and older living in private households in the continental United States, with 253 respondents falling in the "college savers" category.  Interviewing for this CARAVAN® Survey was completed during the period October 7-10, 2010.  

About Private College 529 Plan and the Tuition Plan Consortium

Owned and operated by a national consortium of more than 270 leading private colleges and universities, Private College 529 Plan was created by authorization of the U.S. Congress for colleges and their consortia to help families save for college and increase the affordability and accessibility of higher education. Private College 529 Plan enables families to invest in their children's future by prepaying tuition at member institutions, protecting their savings from annual tuition inflation.  

The educational mix of private institutions participating in Private College 529 Plan provides families with a wide range of college choices. As opposed to other state specific congressionally authorized plans, Private College 529 Plan has a national scope, with participating private colleges across the United States. It also differs in that its administrative management is by the institutions themselves as opposed to government. Today, Private College 529 Plan is working for nearly 6,000 families with over $160 million under management.

(1)  From January 1, 2000 to December 31, 2009, the S&P 500 Index produced an annualized return (CAGR) of -0.99 percent.

(2)  From January 1, 1960 to December 31, 2009, the S&P 500 Index produced an annualized return (CAGR) of 9.47 percent.

SOURCE Tuition Plan Consortium