A new Fidelity study reveals 74% of parents are saving for higher education costs in 2024. Unfortunately, current savings levels are projected to fall well short of meeting savings goals.
Despite financial headwinds, families remain committed to prioritizing education, with more than half actively contributing to a 529 college savings plan or similar accounts.
Fidelity finds parents, on average, hope to pay for 67% of their child’s education. Based on the typical savings rate they report in the study, parents realistically can expect to cover less than half of that; only 30% of the total cost of college.
Many parents plan to rely on financial aid, scholarships, and student loans to bridge the gap.
How can the average family lacking a high net worth or the ability to simply write a check for college determine if their education savings plans will give their kids the best chance of success?
Financial advisors who specialize in serving middle-class Americans offer insights into how to best tackle some of the thorny issues related to college savings.
Long and Winding Road
Many Americans spend several years — often decades — saving for their children’s higher education. Although many parents want to do all they can for their kid’s future, competing priorities often constrain finances.
“Saving for college is a delicate balancing act,” says Ryan P. McGonigal, founder of RPM Financial Group LLC. “There are so many factors – How much should you save per year? Can I still maximize my retirement goals for me and my spouse?”
Although these are tough choices, McGonigal advises his clients to prioritize their futures.
“There are grants, loans, financial aid, and college scholarships,” he adds. “None of those are offered to you when it comes to your retirement. Make sure you fully fund your retirement before allocating money to college savings.”
Yet, complicated access to additional subsidies requires families to conduct prior research.
“The worst thing you can do is to fall in love with a school that is unaffordable and not really understand that until it’s too late,” says Mike Hunsberger, owner of Next Mission Financial Planning. “Very few students pay the full sticker price for college. The problem is unless you do your homework, you don’t know that.”
Despite some students’ dreams of attending prestigious institutions or pursuing specific careers, scholastic ambitions are unpredictable for many. Many students still haven’t decided what profession to pursue after graduation, and many change their majors while in college.
This uncertainty makes it difficult to determine the best financial and academic path and that unpredictability creates even more of a challenge to evaluate whether investment in a particular school or program will pay off in the long run. Paying off debts may become overwhelming if career direction or circumstances change.
Debt Bomb
Historically, a college degree was a ticket to a high-earning career and the middle class. Yet, as tuition rates soar and the disconnect between academic theory and industry skills widens, many Americans grow skeptical about a degree’s value.
“If the career path the student wants to pursue doesn’t necessarily require a degree, I would advise the student (and parents) to look at either less expensive schools or work to pay for the tuition outright and to avoid taking on student loan debt,” says Melody Brady, Principal Financial Planner at Beechmont Financial.
For many aspiring students, the choice to get a degree or not comes down to debt. According to a 2024 Pew Research Center report, only 22% of Americans believe a four-year college degree is worth taking out a loan.
Fortunately, student loan financial advisors increasingly specialize in helping college students implement strategies to eliminate debt.
“My rule of thumb on college debt is that taking out more in loans that you’re likely to make your first year after college can be dangerous,” says Hunsberger. “So if you’re going to be a teacher and make $40,000 after college, you wouldn’t want to borrow more than that. If you’re going to be a computer scientist and will make $90,000, that’s the limit.”
It can help to consult with a financial advisor or college aid counselor experienced in navigating the education funding landscape.
“When it comes to the value of a college degree, especially in an era where employers increasingly prioritize skills, it’s crucial to weigh the potential return on investment against the burden of debt,” says Jorey Bernstein, CEO of Jorey Bernstein Private Wealth Management.
“At my practice, we guide clients through a comprehensive evaluation of their financial situations and career goals to help them make informed decisions,” he continues. “While college remains a valuable path for many, it’s essential for families to consider all options and ensure that their investments align with their long-term aspirations.”
If professional advice is beyond one’s budget, free online tools like the U.S. Department of Education’s Net Price Calculator can help families choose where to apply. Tools available on freemium industry sites like College Aid Pro give an overview of what students pay at each school.
Dial 529
Many families saving for college take advantage of tax-optimized accounts, such as “529” college savings plans, named after Section 529, added to the Internal Revenue Code in 1986.
“529 plans are flexible and keep getting better,” says Kevin Estes, financial planner at Scaled Finance. “Funds can be used for vocational, community college, and graduate school expenses — not just four-year degrees. Technology’s made it easier to contribute, invest the funds, and change beneficiaries.”
“Starting in 2017, families can use up to $10,000 a year for K-12 private school tuition. As of 2019, up to $10,000 can be applied to qualified student loans. A change this year enables families who save more than they need to roll up to $35,000 into a Roth IRA.”
As families traverse the complex landscape of higher education, financial planning is vital. Preparedness alleviates some of the tuition burdens. What resources are available? Why is the child seeking a degree? Parents who take the time to chart a practical pathway forward, give their children the best chance of success.
