While most parents say they have started saving for their child’s education, the impact of inflation, market volatility and rising costs are leaving many parents less prepared to pay.
According to Fidelity Investments’ 2022 College Savings Indicator Study, which has been conducted regularly since 2007, parents are less concerned with the pandemic’s impact on their savings strategy than in 2020. In its place, however, are concerns about inflation and the rising cost of college. That said, 81% of respondents feel college is still worth the cost.
In addition, most (83%) are still planning to either increase or stay the course with their savings strategy this year. Among the 8% of parents planning to decrease contributions to college savings this year, market volatility and job insecurity were top drivers of the change.
In all, 76% of parents have started saving, compared to 58% in 2007, which was the first year of the study. Even so, nearly 3 in 10 respondents (29%) are not sure what that cost will be by the time their child enrolls and 6 in 10 use “their own best guess” to estimate college costs.
And while parent’s expectations may have increased, Fidelity notes that they are still falling short on funding their intended college savings goals. Parents hope to pay for 69% of their child’s education (up from 65% in 2020), however they are on track to meet only 27% of that goal—down from 33% in 2020.
Student Loan Debt
Meanwhile, nearly 8 in 10 parents agree concerns about student loan debt are a motivating factor in saving for their children’s college education—79% in this year’s study, up from 65% in 2018. Parents also expect their children to have saved a median of $5,000 by the time they graduate high school. Even so, 45% have not yet talked to their children about saving and paying for college.
What’s more, parents continue to underestimate the amount of student debt children will incur, estimating their children will graduate with an average of $26,600 in student loan debt, while the nationwide average for a student graduating today is $28,400 with 10% of borrowers still owing $80,000 in education debt or more, according to data by the College Board.
Regarding those parents still paying off their own student loan debt (22% of respondents), nearly 9 in 10 (88%) say once they are finished paying back their own student loans, that money will be used for their child’s college savings.
Savings Priorities
For the first time in recent years, parents ranked saving for college as their top savings priority (27%), surpassing saving for retirement (22%) and an emergency fund (19%). Yet more than a third (35%) of parents planning to pay for at least some of their child’s education do not have a financial plan in place.
For those who prefer additional support and guidance in their planning process, financial professionals can play an important role, Fidelity suggests. Here, the firm found that 85% of parents with a financial advisor say working with one gives them peace of mind about the college planning process (up from 79% in 2020).
The study also found that 86% of parents who have talked to their child have started saving, compared to 63% for those who have not had a conversation. Furthermore, 45% of parents who talked to their child about saving opened a 529 college savings account, compared to the 32% who had not. According to Fidelity, this is important, because the data suggest that not only do parents with a 529 have higher expectations for how much they plan to save, they’re also more likely to meet those savings goals.
“Parents would never recommend their kids not plan for a test and simply guess at the answers as the strategy is unlikely to be very successful,” notes Rita Assaf, vice president of Retirement and College at Fidelity Investments. “Similarly, parents can’t afford to not be prepared when it comes to saving for the rising cost of college.”
As part of the study, Fidelity conducted a survey of parents with college-bound children, asking about 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 from April 18–May 30, 2022, by Boston Research Technologies through an online survey of 1,858 families nationwide with children aged 18 and younger who are expected to attend college.
