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5 hard truths about saving for college
The cost of college in America has more than quadrupled over the past 20 years. And most families aren't saving enough to pay for it.
"American families overwhelmingly expect their children to attend college," Sallie Mae's How America Saves for College 2013 report says. "The majority of parents believe in the value of a college education. At least eight in ten parents agree that college is an investment in their child's future, that college is part of the American dream and that a college degree is more important now than it used to be."
Some data support this finding. The number of people attending college between 2000 and 2010 increased37 percent, with much of that growth occurring in full-time enrollment. This compares against an increase of just 11 percent in the period before that. But rising costs, a dense financial environment, and a tough economy have made it increasingly difficult for families to save for college.
1. The cost of college is skyrocketing
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The cost of college in America has more than quadrupled over the past 20 years. In constant 2009-2010 dollars, the average cost of education at a four-year institution in 1980 was $8,756. By 2010, the average cost had exploded to $31,945. At a two-year institution, costs have increased from $5,580 in 1980 to $23,401 in 2010, a cost increase of approximately the same magnitude.
2. Less than half of parents feel confident that they can save enough…
Just two in five American families report having a plan to pay for their children's college education. As a whole, only 38 percent of parents are confident they can meet the future costs of college. Sallie Mae reports that parents were twice as likely to say they were "overwhelmed" by saving than "confident."
3. …and the numbers show that actual savings fail to meet expected savings
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On average, parents expect to pay about 32 percent of the total cost of college for their child. At a public four-year college, Fannie May calculates that to be about $44,489. However, the 2013 report shows that not only are many parents incorrectly estimating how much they need to save to pay for about one-third the cost of college, they are also not coming close to saving the right amount.
4. A tough economy has hurt savings rates
The number of American families saving for college has declined 10 percentage points over the past three years. In 2010, 60 percent of families reported they were saving for college, down to 50 percent in 2013. In addition to this, those families saving are saving less. Average savings have fallen from $21,615 per family in 2010 to $11,781 in 2013.
5. Many families are not saving at all
Financial restraints and competing savings priorities have made it difficult — or impossible — for some parents to save for their child's college education. Seventy-two percent of families report not having enough income to save for college, while others are focusing on saving for retirement, paying off health care bills, or even paying off their own student loans.
