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.
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 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 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 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 fees.
- 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 evaluation
process.
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
or 1-800-544-9999.
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.
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.
Fidelity Brokerage Services LLC, Member
NYSE, SIPC900 Salem Street, Smithfield, RI 02917
Fidelity Investments Institutional Services
Company, Inc.,500 Salem Street, Smithfield, RI 02917
National Financial Services LLC, Member
NYSE, SIPC,200 Seaport Boulevard, Boston, MA 02110
819807.1.0© 2017 FMR LLC. All rights reserved.
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/
Fidelity InvestmentsMichelle Tessier,
201-915-7470michelle.tessier@fmr.comorFidelity Corporate
Communications, 617-563-5800fidelitycorporateaffairs@fmr.comFollow
us on Twitter @FidelityNews