How Funded Is Your College Account Really?

For students looking to embark on higher education, it can be a daunting calculation. On the one hand, earning a degree can dramatically increase one’s lifetime earning potential — for business majors especially, the return on investment can be lucrative.

On the other hand, too much debt can hinder students’ future buying power, locking up income that could be put away for a first house or into a retirement account. And with student debt rising, estimated at more than a trillion dollars, headlines about the issue are rarely good these days.

Add to the calculus that top colleges are increasing tuition by an average of 3.7% next year, the equation becomes even more difficult to balance.

Here’s a variable that may help some equalize the numbers: More than half, 55%, of parents surveyed by Intelligent.com, a resource for online degree rankings and higher education planning, have started saving for their children’s college educations.

And here’s a variable that may hurt: Nearly a third of those parents have already dipped into the college fund for non-education related expenses.

1 IN 3 PARENTS HAVE DIPPED INTO THEIR CHILD’S COLLEGE FUND

For its latest survey, Intelligent.com asked 1,001 parents who have at least one child under the age of 18 about their college saving plans. Among those surveyed, the median amount parents have saved is $10,000.

“The cost of college has risen rapidly over the past couple of decades. It’s no longer feasible for students to cover tuition costs by picking up part-time work or summer jobs. Today, students either need to rely on student loans or a college fund started by their parents,” the survey report says.

Among the survey’s findings:

  • One-third of parents have used college savings for non-educational purposes, including for medical payments and gambling.
  • 45% of parents haven’t started a college fund; 13% never plan to.
  • Republican parents are twice as likely than Democratic parents to not be planning to save at all.

The cold hard truth is that parent-funded college funds are funded with, well, the parents’ money. More than a third of parents (36%) report that they have withdrawn money from those accounts for non-educational purposes. Some withdrawals were made out of apparent necessity, including 59% who’ve withdrawn funds for essential purposes, 57% for medical expenses, and 45% for rent or mortgage payers. Others seem much more frivolous – 21% used college funds for non-essential purchases and 11% for gambling, according to the survey.

45% OF PARENTS HAVEN’T STARTED A COLLEGE FUND

Despite the fact that 98% of parents surveyed hope their children will pursue higher education, 45% of parents haven’t started a college fund for one reason or another. Some 13% of those say they never plan to.

Reasons vary from not being able to afford to save to believing the government will eventually forgive student loans. The biggest reason, however, cited by 85% of surveyed parents, is that they want their children to pay for their own education.

Parents have at least some reason to hope for student debt relief. In August, President Joe Biden offered many student borrowers a bit of a lifeline, forgiving up to $10,000 of student loan debt for individuals making below $125,000 per year and for families making below $250,000. Pell Grant recipients are eligible for up to $20,000 in forgiveness.

Expanding debt forgiveness remains a major goal for many progressives, but it’s unclear whether the current administration has the capital to go much further than what it’s already done.

DEMOCRATS MORE LIKELY TO HAVE COLLEGE FUNDS

The survey shows significant differences by political affiliation in the reasons parents haven’t started saving for their children’s educations.

Wanting their kids to pay for their own education (to pull themselves up by the bootstraps, if you will) is the number one reason for Republican parents, selected by 45% of respondents. (Respondents could select more than one reason in this category.) Just 11% of Democrats felt the same.
For Democratic parents, the most cited reason is the believe that government student loans will be forgiven at 30% (compared to just 9% of Republicans.)

Party affiliation also plays a major role in whether or not a parent plans to save at all, according to the survey. Republican parents are twice as likely to report having no plans to save for their child’s education than Democrats.

Some 48% of Republicans haven’t started saving yet, but 70% report plans to do so in the future. 15% are neither saving now nor planning to. By comparison, 33% aren’t saving currently, but 79% plan to start. Just 7% are doing neither.

MOST COLLEGE GRADS THINK THE ROI IS WORTH THE COST

Looking at the big picture, it’s important to note that most — but not all — graduates are satisfied with the return on investment for college tuition – even when considering the debt accrued in the process.

Another Intelligent.com survey found that 39% of college grads say they strongly agree, and another 41% say they agree, that paying for college was worth it. In contrast, 20% of respondents do not believe that attending college was worth it. Among dissatisfied grads, 42% believe that college is a poor investment.

Some of the benefits of the college experience cannot be measured by price alone: Lifelong friends and networks as well as a deeper understanding of the world, says professor Lucia Dunn of Ohio State University in a Wallethub.com report on the states with the most and least student debt. When considering colleges, debt ratios, subjects of study, and a family’s ability or willingness to help should all be factors in the decision equation.

“On a strictly economic basis, if the major does not produce measurable value added sufficient to justify taking on the required debt, then I think a family may want to consider other options,” Dunn says. “These could include work-study possibilities, choosing a cheaper college, etc. Also, these days many lucrative and satisfying fields can be entered without a college degree, and many internet groups can provide the non-monetary benefits that I mentioned without formally registering in college.”

Read the full survey here.

 

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