This week Fidelity released the “10th edition of their College Savings Indicator Study.” (FULL DISCLOSURE:) I’m a huge fan of Fidelity Investments and their research arm. As a CERTIFIED FINANCIAL PLANNER™ I used Fidelity’s 529 plans for my clients’ college savings needs. They are a leader in the college savings segment, so when their research arm comes out with a report, realize that they are interviewing individuals, who currently have college savings accounts with them. Moreover, the data they are using are those custodied with and managed by Fidelity. Naturally, I cannot comment on the entire report, so here I want to highlight the Positives and Negatives I see and conclude with questions for parents and students to discuss when it comes to funding a college degree.

Positives:

  1. Parents Are Committed: 72% of respondents reported that they are currently saving for their child’s higher education.
  2. Proper Account Usage: The use of college savings accounts (Coverdale / 529 Plans) is at an all-time high. This suggests parents are becoming more sophisticated in their savings vehicles and are taking advantage of the tax-free/deferred growth.
  3. College Savings A Priority: For parents saving for college is the number two savings priority, right behind retirement.
  4. Planning Pays Off: 66% of parents who are saving for future college expenses say they have a financial plan in place. Those who have a plan are more likely to have started saving (92%), have a larger account balance ($46,800), feel more confident in their target goal (57%), are more likely to use the 529 as a savings vehicle (57%), and are more likely to have already dialogued with their student about college funding (68%).
  5. Cost Management is Important: 71% of parents are looking at ways to reduce the cost of their student’s education: delaying enrollment (13%), accelerated graduation (23%), public over private institution (40%), and live at home (45%).

Negatives:

  1. Coming Up Short: On average parents are planning to pay for 70% of their student’s college expenses, but only have savings for 30% when the bills arrive.
  2. College Savings A Priority: Yes, I realize that I had this same statement in the positives segment. Unfortunately, saving for college has to come from somewhere and many parents are prioritizing college savings over saving for an emergency fund, saving for a house or paying down a mortgage, paying off credit card debt, future health care expenses, and paying down their own student loans.
  3. Failing to Plan is Planning to Fail: 34% of parents who are saving for future college expenses say they have no financial plan in place. Those who have no plan are less likely to have started saving (40%), have a smaller account balance ($19,400), feel less confident in their target savings goal (26%), are less likely to use the 529 as a savings vehicle (14%), and are less likely to have already dialogued with their student about college funding (42%).

There are a lot of good trends in the report, which tells me that parents and children are willing to dialogue about not only the importance of college for the chance at better job prospects and a better life, but also how all parties expect to fund this large investment. If you are not dialoging with your parent or child about how your family is planning to fund further education, here are some suggestions:

  • Student:
    • Do you plan to assist me financially in attaining a college degree?
    • What does that look like? Are you currently saving for my education? If so, how much per month? How much do you expect to have available once I graduate high school?
    • Does your helping me pay for school hurt your ability to save for retirement? Would you be able to put more away for retirement if you contributed less to my education?
  • Parent:
    • How much do you need for each year of school?
    • Are you willing to contribute (work, savings, loans) to your education?
    • What are your expectations of me in funding your degree?
    • Are you willing to change your school of choice to one more economically feasible?
    • Have you thought about community college as a means to reduce your total college expense?
    • Have you researched internal and external scholarships?

In the end, planning for college takes family planning and family sacrifice. While every parent and student would love to have family take care of the bill in its entirety, for most of us this is a dream and not a reality. Parents: do not sacrifice your financial future for your student. If paying for school is not an option, be honest with your child and focus on your long-term financial viability. Students: do not let your parents sacrifice their financial future for your college education. What you may have to pay for through public and private loans will pale in comparison to taking care of your parents during their retirement years.

If you would like to delve further, check out the executive summary here: https://goo.gl/RIxfzn