Families are trimming plans to pay for college, survey finds
Tuesday, October 5, 2010; 12:02 AM
American families are scaling back plans to pay for their children's college education as the stunted economic recovery continues to weigh on household budgets, according to a survey to be released Tuesday that was commissioned by college lender Sallie Mae.
The study, which was conducted by Gallup, found that the percentage of families who planned to make little or no contribution to tuition increased, while the percentage who expected to cover more than half of expenses decreased. The trends were particularly pronounced in Hispanic families, where the number who thought they could only pay a little jumped from 12 percent to 35 percent.
In addition, the percentage of families who said the reason they are not socking away money for college is that they cannot afford it rose from 62 percent last year to 68 percent this year.
"They're adjusting their expectations to the economic conditions, both generally and what they may be experiencing on the individual level," said Bill Diggins, Gallup's lead researcher on the survey.
Still, the study found that even though families are financially stressed, saving for college remained a priority. About one-fifth of families reported it as a top financial goal - up from 14 percent last year and on par with those who rank saving for retirement as the priority.
The rising cost of college education has become a flashpoint in Washington as the recession hampered families' ability to foot the bill. According to a survey by the nonprofit College Board, which administers standardized tests, the cost of attending a private university has risen 2.6 percent a year over the past decade, while public college jumped nearly 5 percent annually. President Obama is slated to hold a summit Tuesday on the state of the nation's community colleges, which have become an increasingly popular option for students seeking affordable alternatives to four-year institutions.
On average, families have saved about $28,000 to pay for college. About 12 percent of that money is in 529 plans, while 14 percent comes from general savings accounts or certificates of deposit. Another 21 percent comes from investments, but the largest portion of that money - 23 percent - is in retirement savings.
Sallie Mae senior vice president Sarah Ducich said the finding that families are relying heavily on retirement accounts "is a little bit disturbing."
Financial experts say that raiding retirement accounts to pay for children's college can be risky. There are tax penalties and other fees if money is withdrawn from the accounts early, and loans against a retirement plan come with restrictions on how quickly they must be paid off and the amount that can be borrowed.
"The education and the retirement are two different buckets. We would never put them together," said Marcia Tillotson, senior vice president of investments for Wells Fargo Advisors. "You can borrow for college. You cannot borrow for retirement."
The study also found that although low-income families saved less money than wealthy households, they still put away an average of $1,788 annually toward college. For families making less than $35,000, that represents about 8 percent of their budget - the largest percentage of any income level. Families making more than $100,000, for example, saved 2.6 percent of their income.
Ducich said the finding underscores the value of college education to poor families, many of whom may not have had similar opportunities.
"For these families, that's the ticket out," she said.