Some changes, though, apparently better not last forever. Thirty-six percent of parents surveyed for Fidelity Investments’ new “2020 College Savings Indicator Study” were disenchanted with the thought of paying full freight for virtual classes in the future, and said they’d consider choosing a less expensive, in-person school, if need be, to avoid that fate once their kids are ready for college.
Already, many schools are feeling some heat from parents and students for not lowering tuition this semester despite going all or partially remote. And while no one knows when the COVID-19 threat will end, clearly the pandemic college experience is getting a gentleman’s C at best.
“The current college experience isn’t exactly what parents envisioned when they began saving,” said Melissa Ridolfi, Fidelity’s vice president of retirement and college leadership. “That has many reconsidering where and how they use their college savings, although parents continue to recognize the value of a college education.”
In fact, the national survey of 1,790 families with children aged 18 and younger who are expected to attend college showed that the overwhelming majority of respondents continue to believe that higher education is “worth its cost.”
How they’ll pay for it, though, is where the real angst – exacerbated by months of lockdowns -comes in:
* 71 percent of parents admit to worrying that coronavirus-related issues could threaten their ability to save.
* 9 percent plan to decrease their contributions this year for reasons that include being unemployed.
The study’s most actionable finding for those feeling even a little angsty themselves?
Three words: 529 savings plans.
These are the tax-advantaged accounts that allow you to sock away money to cover tuition, books, and other expenses at most accredited two- and four-year colleges, universities and vocational-technical schools. And by “tax-advantaged,” we mean the earnings accumulate tax-free and qualified withdrawals are exempt from federal income taxes.
Survey respondents who’d already established a 529 were 22 percentage points closer to achieving their savings goal than those who hadn’t.
“Particularly in light of the financial stress facing families today, it’s important for parents to know that these plans continue to become more flexible as it relates to what’s included in the definition of ‘qualified education expenses,'” Ridolfi said. “Apprenticeship costs, K-12 education, and student loan repayment up to $10,000 were all recently added.”
Yes, everyone still has a way to go if they’re to meet their target of self-funding 65 percent of their child’s ever-more expensive future college education. Including tuition, room and board, and other assorted fees and expenses, according to the College Board, today you’d be talking annual averages of $53,980 for a private four-year college, $42,970 for an out-of-state public four-year college, and $26,590 for an in-state four-year college.
Multiply those numbers by four, and you can see why parents are currently only on track to fund 33 percent of their goal.
A free online tool from Fidelity can help in planning ahead by not only estimating how much it will run you based on whether you’re contemplating a four-year college in the Midwest, say, but also showing how various tweaks can boost your savings. And if you are one of the 45 million Americans with student loan debt, its likewise free Student Loan Calculator can help you figure out whether there’s a better way to pay it off.