Growing number of parents contributing to children's college funds
Lisa Scott of Sparrows Point, Md., has young relatives who graduated from college and struggled to keep up with $100,000 in education debt.
“Their current jobs do not allow them to pay that debt,” said Scott, area marketing director for Chick-fil-A in Maryland. “The stress on them is horrific ... when it should be the most exciting time of their life, coming out of college and ready to take a bite out of the world.”
Scott, 48, doesn't want the same to happen to her 7-year-old daughter, Lilly.
Several years ago, Scott started putting $4,500 away annually in Maryland's prepaid tuition plan, which allows families to pay in advance for college, based on current prices at the state's public colleges. Given Lilly's interest in becoming a veterinarian, Scott said, she and her fiance will start setting aside more money next year.
According to an annual study released recently by Fidelity Investments, 69 percent of parents have started to save for college, the highest percentage since the Boston-based mutual fund company began polling families in 2007. Back then, 58 percent of parents saved for college.
“The economy has been getting better. People are on a more solid foundation,” said Keith Bernhardt, Fidelity's vice president of college planning.
At the same time, he said, parents have heard stories of students who are burdened by steep debt and are trying to prevent that from happening to their children.
But many parents aren't saving enough.
Parents said they plan to pay 62 percent of the total cost of college, but Fidelity found they were on target to meet just one-third of that goal. Families on average set aside $5,000 last year.
The Fidelity study is based on a survey of more than 2,500 families nationwide whose children are 18 or younger and expect to attend college.
Big tuition bills are weighing on parents' minds.
“I have a rising (high school) senior and a rising junior. I lose sleep at night,” said Tim Hayden, coordinator of the office of school counseling for Baltimore County's public schools. He has a daughter who is in seventh grade.
Hayden and his wife started saving for college in mutual funds when their first two children were very young. But the couple's salaries back then were lower, and they weren't able to put away enough to keep up with tuition costs, said Hayden, who recently visited colleges with his sons.
Out-of-state public schools can cost about $40,000 a year, he said, while private universities run $50,000 a year or more.
Hayden, 50, said he might take out a home equity loan to finance college, and his sons might have to use student loans.
Nearly three-quarters of families polled by Fidelity thought college is becoming cost-prohibitive.
Megan Fichter, an Ellicott City, Md., mother of three, agreed.
“I don't understand how you could possibly save enough without starting when they are young,” said Fichter, 39, a stay-at-home parent.
Because of an inheritance, she and her husband were able to prepay tuition for their 7-year-old son using the Maryland Prepaid College Trust plan. They set aside $200 each month in the state's other savings vehicle, the College Investment Plan managed by T. Rowe Price, for their 5-year-old daughter.
The parents, who are trying to save for retirement, haven't begun saving for college for the youngest, now 2.
Fichter said she and her husband expect their children to help out with college expenses, such as contributing to room and board.
“They have to have some skin in the game. Otherwise, it's not important enough,” she said.