Forget retirement, saving for college has become a top priority among some parents.
Fidelity Investments 2014 College Resolutions Study polled parents who have already started saving for college and found that 85% say saving for college is among their top three savings priorities for the year; 34% identify it as their No. 1 goal.
“The degree in which they are focused on saving for college is a strong statement,” says Keith Bernhardt, vice president of college planning at Fidelity Investments. “We have found that people have prioritized that quite high.”
The reasons people are placing more of an emphasis on college savings varies. For some, the improving economy allows them to sock away more money into college funds. Others are motivated by sticker shock as they learn about the rising cost of tuition. And some parents, who are still burdened by their own student loan debts, want to try and help make sure their children don’t face the same predicament.
The survey also shows lofty savings goals with 60% of respondents intending to save more for college than a year ago. Many of the survey respondents report they have a plan in place to reach their goal and most plan to save a fixed amount monthly, with the average amount coming in at $405 a month.
While there are a variety of ways to save for higher education, a 529 college savings plan was popular among survey respondents with 50% showing they already have a 529 set up and among that group, 93% plan to contribute as much as last year. More than half are more ambitious, aiming to save more than last year in their 529 account.
“529 accounts are a good dedicated savings vehicle,” says Bernhardt, noting parents have other vehicles to save, including a bank account, CD or a Coverdell Education Savings Account (ESA), which is a savings account where the contributions grow tax free. “The key is to make sure it’s a dedicated college savings account so you don’t have reason to dip into it.”
The source of parents savings also varies. According to the survey, 81% plan to save monthly, while 37% are aiming to use some or all of their 2013 tax refund for the college fund. Thirty-six percent plan to put a portion of their bonus or raise toward college savings while 29% are allocating money previously used for day care or after school care for the college savings. Monetary gifts given to their children throughout the year is also going to college savings, according to the survey, with 37% identifying that as their preferred strategy.
It’s never too late to start saving for your children’s higher education, but the earlier parents start putting away money the better off they will be heading into high school graduation, says Bernhardt. Even putting a few bucks away each month is better than nothing. “You don’t need a bullet-proof plan to get started,” says Bernhardt. “The first step is getting started not having a perfect plan.”
What’s more, Bernhardt says parents have to ignore misinformation out there when it comes to college savings. Many people wrongly assume the amount of financial aid their child or family will be eligible for will be reduced because of their college savings. But Bernhardt says it doesn’t work that way.
“The financial aid system is driven on income,” he says. “Parents are expected to contribute less than 6% of their non-retirement savings.”