First, the bad news: The economic turmoil of the past two years drove many families to eliminate or significantly cut back socking away money for college, a new study found.
The survey of more than 1,600 parents with children under age 18 noted that 50 percent were saving for college. However, that was down from 60 percent two years ago when the survey was last taken.
That’s the major takeaway from “How America Saves for College,” which was released Tuesday by Sallie Mae, the higher education financial services company.
The good news? Given the crazy state of the economy, the numbers could have been much worse, the authors acknowledged.
The national survey, conducted last August by the Ipsos research firm, found the economy affected parents’ ability to save in three ways: whether they saved at all, how much they saved and where they parked the money.
• Half the parents interviewed said they were concentrating on paying down debt and rebuilding rainy day and retirement funds. Saving for college? Well, someday.
• There was a “substantial savings gap” between the amount of money that parents expected to save for college and what they actually will put away. Based on current savings habits, parents will have saved about $20,000 by freshman year of college, only half of the roughly $40,000 they had hoped to save.
Even with their own dollars in the game, parents expected the majority of college costs to be covered by scholarships, grants and loans.
• Low-yielding but low-risk certificates of deposit were the most common savings accounts among those setting aside for college, followed by state-sponsored 529 accounts, such as the MOST plan in Missouri and Learning Quest in Kansas. Those 529s offer the possibility of more substantial returns, but with a higher risk.
Unfortunately, many families are not taking advantage of a key feature of 529s — no federal income tax on the investment’s earnings when used to pay tuition and other approved educational costs. State tax breaks are typically available, too. Another 529 incentive: Many states, including Kansas and Missouri, offer matching funds for qualified income earners.
Despite some of the downward data points, more families are feeling more confident about the economy and are likely to be in a savings catch-up mode, said Sarah Ducich, senior vice president of public policy at Sallie Mae.
“All the savings indicators are looking more positive, so we’re probably seeing an uptick in saving for college, too,” Ducich said.
The Sallie Mae survey comes amid a growing federal and state policy debate about the high cost of higher education and the effect on middle- and low-income families.
Though the study did not specifically address that issue, it did capture some of the frustrations and emotions about the frequently outrageous sticker prices at State U.
When asked to describe their feelings about saving for college, some of the parents answered that they were overwhelmed, annoyed, frustrated or scared or they “didn’t like thinking about it at all.”
And that’s my final takeaway: Being in denial is not an option.