With tuition fees in the United States at exorbitant levels, many parents find themselves helping to cover the cost of tuition. After surveying over 1,000 parents of children under the age of 18, Student Loan Hero found that an overwhelming 92% have either started saving for their child’s college or would like to start.
The looming price of tuition and other expenses is a priority for many parents, with more than two-thirds of them saying they would consider using their retirement funds to pay for a school fee. child.
- 68% of parents would consider withdrawal of their retirement savings to help pay for their child’s education. (Read more)
- 32% of parents say they are saving for their children’s education is their top financial priority. (Read more)
- Mothers feel more guilty on the amount of money they saved for their child’s college education than fathers. (Read more)
- Parents whose own parents helped pay for their education are more likely to have money set aside for their child’s college education. (Read more)
- Of those who save for their children’s education, 37% have started saving even before their child’s first birthday. (Read more)
- Almost three-quarters of parents save for their child’s college education do not take advantage of a plan 529. (Read more)
Most parents would use their retirement savings to help pay for their education
While parents have many competing financial commitments, including retirement over current debt, savings for college often seem to be near or near the top of the list.
According to our survey, 68% of parents would consider withdrawing their retirement savings to help pay for their child’s education.
Fathers were particularly likely to consider this option, with 74% saying they would consider using retirement funds compared to 64% of mothers.
This option may make sense to some, since the IRS allows you to withdraw from your retirement savings to pay for eligible education costs without penalty. However, depleting your retirement savings could make your financial future less certain.
Almost a third of parents see university as a top priority
For some, saving for a child’s education is the most important financial task there is. According to our results, 32% of parents said saving for college was their top priority, compared to 25% who chose to pay off debt and 18% who named saving for retirement.
When it comes to other financial goals, fathers were more likely than mothers to place retirement savings at the top of their list (25% vs. 13%). Mothers, however, were more likely to focus on paying off their debts (32% vs. 16%).
Other priorities included building an emergency fund (24%), investing in the stock market (6%) and investing in life insurance (5%).
Women feel more guilty than men for saving their education
Despite having to juggle many competing financial goals, many parents say they are happy with the amount of money they’ve saved for their child’s education – 70% said they feel satisfied.
Fathers were more likely to be confident about their level of college savings (79%) than mothers (56%). On the other hand, more than twice as many moms as dads said they felt bad for not saving more (37% vs. 17%).
Household income certainly helps when it comes to achieving the goals of a university fund. Parents with six-digit household income were more than three times more likely to have money saved for their child’s college than those with less than $ 35,000 (76% vs. 23%).
Parents’ own experiences affect college savings levels
Providing help for college tends to run in the family. Those whose parents helped pay for their education appear to be more likely to have saved money for their child’s education.
- Among respondents whose own parents paid all of their studies, 80% said they had started saving for their children to go to university.
- Among those whose parents paid part of their studies, 57% have started saving.
- For those who paid for college without parental assistance, 37% had started some university fund.
While household income and other factors certainly play a role in how much parents can save for higher education, those who have received such assistance in the past seem eager to pay it forward.
Many start saving for college before a child’s first birthday, but goals are hard to meet
Tuition can be a huge expense, leading many people to start saving early. The survey found that 37% of parents started saving money for college before their child’s first birthday.
Of this group, 18% started saving even before the birth of their child.
As for the amount they hope to save, a majority of parents (65%) aim to set aside more than $ 30,000. However, only 33% of those who had started saving reported having $ 30,000 or more.
On the other end of the spectrum, nearly 31% of those who had started a college fund said they had raised $ 10,000 or less so far.
The cost to college can vary widely, depending on the institution and the level of financial aid (including scholarships and grants). That said, $ 10,000 could reduce it, as the median cost of just one year of a full course load at a four-year nonprofit college in 2020 was $ 12,720.
Most parents don’t use 529 plans
While parents work hard to save for their children, relatively few are interested in using a tax-efficient 529 plan. A 529 plan is an investment account that allows you to use your income tax-free, as long as you spend it on qualifying educational expenses.
According to our survey, however, just under 27% of parents saving for their child’s college education were using a 529 plan. Instead, the vast majority (73%) had turned to regular savings accounts. .
About 26%, meanwhile, said they were saving in an investment account, such as a mutual fund or IRA. Another 17% said they save cash, which is generally not a preferred method as the money will not accumulate interest over time. (In fact, the money could to lose value over time due to inflation.)
If you are saving for your child’s education, consider your options carefully so you can choose the one that gets you the most of your money. For example, take a look at 529 plans, as well as those with prepaid tuition plans that let you lock in today’s rates at some public colleges. Our guide to the 529 plan options explains more.