Not a Member?  Become One Today!

Rising College Costs Heighten Employees' Financial Stress
College costs increased 26% over five years

By Stephen Miller, CEBS  9/16/2011
 

Employees in the U.S. with young children feel forced to divert a larger share of their paychecks to preparing for their offsprings' college costs, adding considerably to their financial stress, according to a 2011 analysis by Fidelity Investments.

“Families are planning earlier and saving more efficiently, yet with college costs increasing 26 percent in a five-year period, saving for college will continue to be a challenge,” said Joseph Ciccariello, vice president for college planning solutions at Fidelity.

Some of the most significant trends in college saving behavior, as reported in Fidelity's fifth annual College Savings Indicator Study, are discussed below.

Starting to Save in the Preschool Years

In 2011, 40 percent of U.S. parents with preschool-aged children (ages 0-5) had started saving for college costs in a dedicated account—up from 27 percent in 2007—with most parents (53 percent) saying they were prompted to do so by the birth of a child. Parents might be saving earlier because fewer parents (48 percent, down from 70 percent in 2008) believe that their child will receive a student loan for the full amount needed to pay for college.

Moreover, "preschool parents" are saving for college despite the fact that 60 percent of them are still paying back their student loans. And nearly half (48 percent) are paying, on average, $576 per month for preschool or day care. Many of these parents will save money when they no longer have to pay preschool or day care expenses, assuming that a child attends public elementary school. Sixty percent of these parents are planning to allocate some of that money toward saving for college, according to the study.

“The preschool-to-kindergarten transition is the perfect time for parents to reallocate ‘found’ money toward other savings priorities—like college and retirement—and pay down debt,” said Ciccariello.

Using a Tax-Advantaged College Savings Plan

Among parents who had started saving for college, 37 percent were using a tax-advantaged college savings account such as a 529 plan or Coverdell Education Savings Account, up from 26 percent in 2007. One-third of parents said they were turning to financial professionals to help guide their college savings decisions, an increase from 21 percent five years earlier.

“One statistic that hasn’t fluctuated in five years of tracking attitudes toward college savings is that 80 percent of parents believe that a college education is a minimum requirement for a decent job,” said Matt Golden, vice president for college planning solutions at Fidelity. “This is why more financial advisors are providing advice around financing that critical degree and recommending a 529 plan as a tax-advantaged savings vehicle.”

Greater Shared Sacrifices

Three-quarters of parents (75 percent) said they do not want to burden their children with college loans (up from 65 percent in 2007). In a five-year period, families had increased significantly their use of a range of strategies for managing college costs and generating additional income.

Strategies

2007

2011

Have a child live at home and commute

38%

48%

Encourage child to attend public college or university

34%

44%

Ask child to graduate in fewer semesters

13%

44%

Have child work part time

49%

59%

Ask child to help pay for college

36%

46%

Have nonworking spouse go back to work

11%

18%

Parent gets a second job

11%

17%

Source: Fidelity's fifth annual College Savings Indicator Study.

Making the Grade

Taking into account rising costs for higher education and the sacrifices being made to save, parents are telling their college-aged children to “make the grade.” Two-thirds of parents (66 percent) report that they will require their child to maintain a certain grade point average (GPA) in order for the parents to fund their child’s education. The average GPA parents say they will require is a 3.1 out of 4.0.

Stephen Miller, CEBS, is an online editor/manager for SHRM. 

Related Article—External:

Get Smart About College, Wall Street Journal, September 2011

Related Articles—SHRM:

Financial Stress Contributing to Productivity Loss, SHRM Online Benefits Discipline, April 2011

Assessing and Developing Employee Financial Competency, SHRM Templates and Tools, December 2010

EAPs Face Upsurge in Calls from Stressed-Out Employees, SHRM Online Benefits Discipline, March 2009

Easing the Burden of Financial Stress in the Workplace, SHRM Online Employee Relations Discipline, June 2008

Address Financial Ills to Reduce Other Workplace Problems, SHRM Online Employee Relations Discipline, June 2008

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Retirement Plans Resource Page

Sign up for SHRM’s free Compensation & Benefits e-newsletter

Copyright Image Obtain reuse/copying permission


Sections