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Despite All-Time High College Savings Rate, Families Underestimating Future College CostsWhile saving for college remains at an all-time high with 72 percent of families focused on building their college nest eggs, Fidelity Investments® new College Savings IQ survey reveals that many parents could benefit from additional education when it comes to savings and planning best practices. The survey identified knowledge gaps in three categories: 1) the future cost of college and how much they should be saving; 2) fundamentals of 529 college savings plans; and 3) how saving for college impacts financial aid eligibility. This press release features multimedia. View the full release here: http://www.businesswire.com/news/home/20171012005893/en/ Despite All-Time High College Savings Rate, Families Underestimating Future College Costs (Photo: Business Wire)
Parents Committed to Minimizing Student Debt, but Underestimate
College Costs Estimating future college costs is not the only area where parents need more guidance. Nearly half (45 percent) of parents admit they do not have a good idea of exactly how much they should be saving each month. "Pinpointing how much you should save can feel like a moving target - especially when your kids are young and college goals for your child's education may be more undefined," says Keith Bernhardt, vice president of college planning at Fidelity. "But the key is to get started. Set a reasonable goal to start building your college fund, and take advantage of free and simple to use tools available online to refine your savings goals over time." This uncertainty is not hindering parents' motivation to save and ultimately reduce the potential student loan debt their children may face down the road. Eight-in-10 parents cite concern for their child taking on significant debt as a factor motivating them to save more. Just how much debt do they worry their kids will carry? Eighty-five percent of parents expect their child to graduate with debt, estimating an average of $45,000 in student loans. Furthermore, many parents are looking to reduce the financial burden their children will face. In fact, many parents intend to bear the brunt of college expenses, planning to cover 51 percent of college costs with their own savings and parental loans. They expect their child to take on approximately a quarter (23 percent) of the expenses and estimate another 19 percent will be covered by scholarships. For many, this commitment may be influenced by their own experience managing debt. Thirty-seven percent of parents with kids in high school report they are still paying down their own student loans; that percentage skyrockets to 68 percent for parents of kids in preschool or younger. To help do their part, nearly half (48 percent) of parents saving for college are doing so in a tax-advantaged 529 plan, with those contributing regularly saving a median of $300 each month. Almost all (93 percent) believe that saving in a dedicated college account helps keep them on track as they work toward their college goals. Overall, 529 plan owners report having accumulated an average of approximately 50 percent more in their college nest egg than those who are saving, but not using a 529 plan ($32k vs. $21k). In addition, nearly half of parents saving for college (49 percent) are working with a financial professional for savings and planning guidance as they work toward these college goals, and those working with an advisor report having saved an average $14k more than those without.
Opportunity to Build Greater Awareness of 529 College Savings Plan
Benefits
While there is still work to be done to raise greater awareness of 529 plans and their benefits, Fidelity sees more families taking advantage of this tax-advantaged savings vehicle each year. The firm has seen a 34 percent increase in 529 college savings plan account openings through the first half of 2017, compared to the same time last year.
Parents Need More Insight into How (Little) Saving Affects Financial
Aid In truth, only a small percentage of 529 plan assets (or savings in general), up to 5.6 percent, are included in a family's Expected Family Contribution (EFC), as determined by the federal financial aid formula. And yet, when asked how much of their total 529 savings they would be expected to contribute per year of college, 98 percent of parents either significantly overestimated or couldn't answer, illustrating a critical lack of knowledge of how 529 savings are considered in the financial aid evaluation process.
How to Close the Knowledge Gaps and Strengthen College Savings
"Juggling the multitude of financial priorities that are a reality for most families can be overwhelming, from saving for college, to planning for retirement, to building an emergency fund, to managing additional day-to-day financial responsibilities," said Ron Hazel, senior director of Fidelity Advisor 529 and individual retirement products. "By working with an advisor, parents can benefit from valuable guidance in mapping out their financial landscape and adopting savings and investing strategies to successfully meet their family's goals."
Both online and in-person resources are available to help families save and plan for college. Parents can access a full library of educational articles, videos, calculators and other tools at Fidelity's College Learning Center. Additional Viewpoints articles provide a range of insights on college topics including: Are your college savings on track?, ABCs of 529 college savings plans, and 3 "must know" college financial aid tips. College planning specialists are also available to answer questions and provide guidance at Fidelity 196 investor centers across the county, or by calling 800-544-1914.
Tools and Resources for Advisors
About the Fidelity Investments College Savings
IQ Survey
About Fidelity Investments The UNIQUE College Investing Plan, the Fidelity Advisor 529 Plan, the U.Fund® College Investing Plan, the Delaware College Investment Plan and the Fidelity Arizona College Savings Plan are offered by the state of New Hampshire, MEFA, the state of Delaware, and the Arizona Commission for Postsecondary Education, respectively, and managed by Fidelity Investments. If you or the designated beneficiary are not a New Hampshire, Massachusetts, Delaware or Arizona resident, you may want to consider, before investing, whether your state or the designated beneficiary's home state offers its residents a plan with alternate state tax advantages or other benefits such as financial aid, scholarship funds and protection from creditors. Units of the portfolios are municipal securities and may be subject to market volatility and fluctuation. This information is intended to be educational and is not tailored to the investment needs of any specific investor. Fidelity, Fidelity Investments, Fidelity Advisor Funds, and the Fidelity Investments & Pyramid Design logo are registered service marks of FMR LLC. The third-party marks appearing herein are the property of their respective owners. Please carefully consider each plan's investment objectives, risks, charges and expenses before investing. For this and other information, contact Fidelity or visit fidelity.com for a free Fact Kit or request a free Offering Statement from your advisor or through advisor.fidelity.com. Read it carefully before you invest or send money.
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Fidelity Investments Institutional Services Company, Inc.,
National Financial Services LLC, Member NYSE, SIPC,
819807.1.0 1 College Board, Trends in College Pricing 2016, October 2016. Estimates assume the cost of college is growing at 2.98% each year. A straight average of total charges (tuition, fees, room and board) for a combination of public and private four-year colleges was used for this calculation. Note that total expenses include books, supplies, transportation and other costs. 2 Fidelity Investments Grandparents and College Savings Study, June 2014 View source version on businesswire.com: http://www.businesswire.com/news/home/20171012005893/en/ |