Fidelity® survey finds significant knowledge
gaps when it comes to estimating how much to save and 529 college
savings plan fundamentals
While 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.
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Despite All-Time High College Savings Rate, Families Underestimating Future College Costs (Photo: Business Wire)
Parents Committed to Minimizing Student Debt, but Underestimate
College CostsWhile college savers appreciate higher education
as an investment in the future, many parents may be dramatically underestimating
the sticker price associated with earning a degree, based on current
average costs and rates of college inflation. When asked what they
expect the four-year cost of college will be by the time their child
heads to campus (before financial aid, scholarships or other discounts),
parents of preschoolers fell short by an eye-opening average of
$110,000, according to the current pace of college inflation1.
Even parents with high school students, who should be most likely to
have a handle on what to expect, were significantly off the mark,
underestimating the potential sticker price of a four-year degree by an
average of $70,000.
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
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
BenefitsWhile familiarity with 529
plans continues to grow (76 percent say they are very/somewhat
familiar), many parents still remain unclear on the basics of these
accounts, and may be missing out on certain benefits and opportunities
to maximize their savings potential. When asked questions specific to
college savings plans, many showed a lack of understanding around key
529 plan attributes including:
Account owners can change a plan’s beneficiary at any time.
529 savings can be used to pay for more than just tuition and school
Account owners have the ability to adjust the investments within their
529 plan portfolio after opening.
Options for 529 savings if the beneficiary doesn’t need all funds to
pay for college.
Whether their home state offers a tax deduction or credit for
contributions to college savings.
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
AidThe third category that caused confusion among parents is
recognizing that saving for college has only a small impact on financial
aid eligibility. One of the most popular myths associated with college
savings is that saving too much will significantly hurt a family’s
chances for financial aid. Forty-four percent of parents believe that
how much they have saved for college will eliminate their opportunity to
be offered future 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
How to Close the Knowledge Gaps and Strengthen College SavingsWhile
parents may earn high marks for their commitment to saving, taking
action now to learn more about college costs and how to plan for them
can help ensure families reach their college goals. Fidelity recommends
three steps to better prepare:
Consider Reaching Out to a Financial Professional: The majority
(78 percent) of savers working with an advisor say that working with a
professional has helped them get closer to their college savings goals.With
33 percent of parents having either stopped or reduced savings for
retirement in order to save for college, advisors can also help
prioritize financial needs based on a family’s individual situation.
“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.”
Map Out Your Savings Journey: Parents with a financial plan in
place are more than twice as likely to feel they have a good idea of
how much they need to save in comparison to those without. Findings in
the survey show those with a plan are also more likely to save
regularly (72 percent vs 46 percent) and have saved nearly double of
those without a financial plan ($34k vs. $19k).
Find Opportunities to Boost Your College Savings Nest Egg:
Savings can truly be a family affair, as previous Fidelity research
has found that 90 percent of grandparents would contribute to a
college fund if asked2, yet only 23 percent of parents have
actually inquired. To make contributing easier, Fidelity offers a 529
Online Gifting Service, which lets owners of Fidelity’s retail 529
college savings accounts use social media to encourage friends and
family to help them save for college. For additional ways to jump
start savings, see this Calendar
of College Savings Strategies.
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 AdvisorsFidelity also provides
financial advisor clients with 529 plan information, marketing support
and online tools such as the 529 State Tax Deduction Calculator and the
College Savings Planning tool. Financial advisors can get more
information at institutional.fidelity.com/529
About the Fidelity Investments College Savings
IQ SurveyAs part of the study, Fidelity conducted a
survey of parents with college-bound children of all ages. Parents
provided data on their current and projected household asset levels
including college savings, use of an investment advisor and general
expectations and attitudes toward financing their children’s college
education. Data was collected by Boston Research Technologies, an
independent research firm, through an online survey from July 26 –
August 22, 2017, of 1,984 parents nationwide with children aged 18 and
younger who are expected to attend college. The survey respondents had
household incomes of $30,000 a year or more, and were the financial
decision makers in their household. College costs were sourced from the
College Board’s Trends in College Pricing 2016. The results of the
Fidelity College Savings IQ may not be representative of all parents and
students meeting the same criteria as those surveyed for this study.
About Fidelity InvestmentsFidelity’s
mission is to inspire better futures and deliver better outcomes for the
customers and businesses we serve. With assets under administration of
$6.4 trillion, including managed assets of $2.3 trillion as of August
31, 2017, we focus on meeting the unique needs of a diverse set of
customers: helping more than 26 million people invest their own life
savings, 23,000 businesses manage employee benefit programs, as well as
providing more than 12,500 financial advisory firms with investment and
technology solutions to invest their own clients’ money. Privately held
for 70 years, Fidelity employs more than 40,000 associates who are
focused on the long-term success of our customers. For more information
about Fidelity Investments, visit https://www.fidelity.com/about.
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.
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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
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