Average amounts saved for college have fallen 25 percent since last year and fewer middle-income families are saving for higher education, even as parents overwhelmingly endorse its value as an investment, according to "How America Saves for College 2015," the latest survey by education lender Sallie Mae.
Parents had an average $10,040 set aside for college earlier this year, compared to $13,408 last year, the survey found. Savings for all purposes, including retirement and emergencies, also plunged to $98,867 from $115,604 last year.
"The biggest reason for the decrease in savings are the increase in the cost of living and having unexpected expenses come up," says Michael Gross, head of the higher education practice at market research company Ipsos, which conducted the survey for Sallie Mae.
Ipsos interviewed 1,988 parents of children under 18 for the survey between Jan. 14 and Jan. 28.Roughly half of all parents are saving for college, but among families with incomes between $35,000 and $100,000 the rate fell to 46 percent this year from 51 percent last year, the survey found.
Still, nine out of 10 parents believe that college is an investment in their children's future, with 84 percent believing their children will earn more money with that education, and 78 percent that a college degree is more important than in the past.
General savings accounts continued to be the most widely used vehicle for college funds, with 48 percent of savers using them, followed by 27 percent who used tax-advantaged 529 college savings accounts. Nearly one-quarter (23 percent) said they saved in checking accounts.
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High-income families were far more likely to use 529 college savings plans, with 49 percent of high-income savers using them compared to 20 percent of middle-income and 17 percent of low-income savers. Among non-savers, four in 10 were unaware of the existence of 529 plans, similar to previous years.
Parents who don't save also tend to overestimate how much financial aid their children will receive. Nearly two-thirds of those who don't save said it was because they believed their child would get enough financial aid or scholarship help to cover college costs. Scholarships and grants typically cover about one-third of the total average cost of college, according to a corollary Sallie Mae study, "How America Pays for College 2014."
Just the act of creating a plan for college savings seems to boost the odds of success, said Martha Holler, a Sallie Mae representative. Families who formulated a plan for college savings saved 46 percent more than families without a plan, the 2015 Saving for College survey found.
Parents who save for college began on average when their oldest child was 6.5 years old. The initial expenses of infancy and the toddler years are over while the child's formal education has begun, which leads parents to think about future education costs, Holler says.