A new study published by Sallie Mae – How America Saves for College 2013 – looks at how the typical undergraduate and their family pays for college. The lender has been conducting this research since 2009 and this is the third report of results. The overall outlook is interesting – it shows that parents fully expect their children to attend college and are optimistic about their ability to save to pay for it, but the gap between expectation and reality is staggering and explains the proliferation of student loan debt across America.
Who’s Saving and Where Are They Stashing the Cash?
According to Sallie Mae, only half of parents are setting money aside for college – this is down from 60% just three years ago. But not only are parents not saving for college, they’re not saving at all – by all indications, they simply cannot afford to. And those that are saving are not doing so via means best suited for college savings, such as 529 plans. Most are simply hanging onto money in checking or savings accounts, CDs or retirement accounts. This latter is one of the worst places to stash college savings because unless you are age 55, at a minimum, and retired, you can’t withdraw the funds for school without a hefty tax penalty.
Why Aren’t Parents Saving for College?
As mentioned previously, for many, there’s simply not enough money to cover living expenses and save. Others haven’t made setting aside money for education a priority. Still others are hoping the money will crop up from other sources – but, for many, this may be pie-in-the-sky thinking. As many as 25% of parents believe that their children will be eligible for enough in scholarships, grants and aid to tackle the costs of college. Sadly, they’re wrong. According to Sallie Mae, another 11% see it as the child’s problem to find enough money to pay for school, which is also sad.
Other Interesting Results from the Research
It’s no surprise that the highest earners feel best about their prospects for saving and paying for college. 53% of those earning the most are confident, while closer to a third of middle and lower income earners feel good about saving for their children’s school. Lower and middle income parents are saving far less than they need – and far less than they planned to. The lowest tier income earners plan to save $30,000 (give or take) per child but, in reality, save less than one-third that amount. Middle earners save half what they planned and only one-third what they’ll need in reality.
What This Research Means for the Future of Student Loans
With college costs continuing to rise and no end in sight, this report doesn’t bode well for the financial future of prospective college students. There’s no way to crunch the numbers of rising costs and falling savings that come out to a decline in student loans. This would be a tolerable trend if it weren’t for the ongoing rise in default rates – now close to 15%.
What’s the solution? If the government is losing millions a year due to defaults, why not just increase Pell Grants by this amount and try to cut out these faulty loans? Of course, that’s assuming the grants would make their way to the problematic borrowers. Why not push colleges to cut costs? Encourage cost-saving MOOCS and drop tuition for online learning? Likely a solution could be found – if one was being searched for – but that’s a question in itself. You can read the entire Sallie Mae report for yourself here.
No matter what your loan status, how much you owe or to whom, Tuition.io’s free student loan tool can keep you on track with your debt. Sign up from the moment you sign on for loans and stay in good standing from the get-go. Be sure to read our blog every day for tips and news and check out our Student Loan Help Center for how-to guides on repayment plans, deferment and forbearance if you’re struggling with your loans.