Trends in college savings

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Mark Kantrowitz

By Mark Kantrowitz

May 16, 2018

College savings are up significantly, according to the 2018 Sallie Mae/Ipsos survey, How America Saves for College.

A similar percentage of parents are saving for college in 2018 (56%) as in 2016 (57%), up sharply from 48% in 2015. Parents are now about as likely to be saving for college as for retirement (54% in 2018 and 56% in 2016).

But, the average amount saved for college is up 11%, from $16,380 in 2016 to $18,135 in 2018.

Why parents are saving more for college

Parents have increased their college savings because they have more money to save, partly because of an increase in income (39%) and partly because of a decrease in expenses and debt (20%). Almost a quarter of parents are working more hours or taking on a second job to pay for college (23%). Some parents have transferred a portion of their previous student loan payments to their children’s college savings plans (7%).

Among parents who have increased their college savings, 13% are using shopping rewards programs. Parents are also asking friends and family to give the gift of college instead of birthday and holiday presents (9%).

Parents increased the amount they save after evaluating their progress to their college savings goals (27%) and after they have learned how much college will cost (21%).

Making regular contributions also helps, with 38% using automatic deposits and 29% making regular deposits manually. Middle and high-income parents are more comfortable using automatic deposits than low-income parents.

Why some parents don’t save for college

The primary reason why some parents aren’t saving for college is they don’t have enough money (52%). Among parents who are saving less, many have had unexpected expenses (52%), an increase in the cost of living (40%) or lower earnings (37%).

Still, more than a quarter of parents who don’t save for college figure that financial aid will cover the costs (27%), that college won’t be too expensive (12%) and that it is the child’s responsibility to pay for college (11%).

Mismatch between college savings goals and college savings progress

The 11% increase in average college savings puts parents on track to save for about one year of college costs for one child at an in-state public 4-year college.

But, this falls short of their college savings goals.

According to the Sallie Mae report, families expect their college savings to cover 29% of college costs, close to the one-third rule. Almost seven-eighths of them are confident that they’ll reach their college savings goal (86%). But, the Sallie Mae report shows that college savings actually cover only 10% of college costs. This shortfall contributes to increased student debt.

Families need to save more. Every dollar you save is a dollar less you’ll have to borrow. Even if you don’t get a return on your investment, you save by avoiding debt, since every dollar you borrow will cost about two dollars by the time you repay the debt. It is cheaper to save than to borrow.

Only about a quarter of parents measure college savings success as achieving their college savings goal (24%). Another quarter are satisfied by seeing the college fund grow, no matter by how much (26%). Others consider whether they made an annual contribution, regardless of whether it is on track to achieve their goals (13%). A fifth of parents consider success as occurring when they don’t spend the college savings plan money on other purposes (20%).

Also of concern, Sallie Mae reports that the average college savings goal decreased by 11%, from $61,902 in 2016 to $55,342 in 2018.

Families still unaware of 529 plans

Only 40% of parents are saving for college in a dedicated college savings plan, such as a 529 plan (29%), Prepaid Tuition Plan (8%) or Coverdell Education Savings Account (2%). The majority are saving in general savings and investment accounts (58%). About 1% are saving in piggy banks.

While 37% of high-income families save in 529 plans, only 17% of middle-income families and 4% of low-income families save in 529 college savings plans. Low-income families are much more likely to save in juvenile life insurance policies (9%) as compared with middle-income and high-income families (2% and 1%).

More than a quarter (26%) of parents who do not have a college degree save in prepaid tuition plans, compared with only 2% of parents with college degrees. Parents with Bachelor’s degrees are much more likely to invest in 529 plans (38% vs. 13% for parents with Associate’s degrees and 9% for parents with no college degrees).

A contributing factor may be a lack of awareness. Overall, 38% of parents have heard of 529 plans, but this varies significantly by income. Three-fifths (59%) of high-income parents have heard about 529 plans, compared with 37% of middle-income parents and 18% of low-income parents. When asked why they don’t use 529 plans, 22% say they don’t have enough money, 19% say they don’t know enough about them, 12% prefer a different method, 9% are not comfortable with government programs, 7% say they are too complicated, 6% worry that they will lose the money if the child doesn’t go to college, 3% worry that they’ll lose financial aid and 3% find them to be too intimidating.

Saving for college feels good

Parents who save for college have more positive feelings than parents who haven’t saved.

The Sallie Mae report addresses negative feelings:

  • 44% of non-savers feel overwhelmed, compared with 17% of savers
  • 29% of non-savers are annoyed and angry, compared with 16% of savers
  • 28% of non-savers are anxious, compared with 22% of savers

The Sallie Mae report also addresses positive feelings:

  • 48% of savers feel they are doing the right thing, compared with 18% of non-savers
  • 45% of savers feel motivated, compared with 10% of non-savers
  • 36% of savers feel proud, compared with 11% of non-savers
  • 35% of savers are satisfied, compared with 11% of non-savers

A good place to start:

See the best 529 plans, personalized for you