Millennial parents want to lighten the student loan debt burden for their children.
Young parents, many of whom are paying off their own student loan debt, plan to cover, on average, 74 percent of their children’s college costs, compared with 64 percent for Generation X parents and 60 percent for baby boomer parents, according to a new study on college savings from Fidelity Investments. And a whopping 43 percent of millennials aim to pay for the full cost of their children’s college education compared to only 32 percent of Gen X and 27 percent of boomers.
“I was surprised by the degree of millennial optimism,” said Keith Bernhardt, Fidelity’s vice president of retirement and college products.
(Source: Fidelity Investments)
Having lofty goals is great, but it matters more if college savers can “walk the talk,” Bernhardt said. Overall, parents are on track to pay for only 27 percent of their college funding goal by the time their children reach college age, down 1 percentage point from last year’s survey. Fidelity surveyed 2,470 families with children 18 years old and younger and an annual household income of at least $30,000.
But it’s not all wishful thinking on the part of millennial parents. On average, they have 28 percent saved toward their college funding goal compared with 25 percent for Gen Xers. Millennial parents are more likely than other generations to use a 529 college savings plan, save monthly, increase their contributions annually and start saving when their children are 5 years old or younger.
Millennial parents’ own student debt experiences have influenced college savings decisions for their children. Eighty-seven percent surveyed by Fidelity said that their student debt is motivating them to help their kids save more for college. Of the millennial parents surveyed, 40 percent had student loan debt with an average balance of $20,800 and 56 percent of those parents are still paying off their loans.
Helped by the enthusiasm of millennial parents, the percentage of families saving for college is at an all-time high, according to Fidelity, with 69 percent of families surveyed reporting that they have started saving for college. That figure is up from 64 percent last year and 58 percent when Fidelity first conducted a college savings study in 2007.
The 529 plans had a noticeable impact on families’ college savings, Fidelity found. Those with 529 plans had saved an average of $34,900 for college compared with an average of $26,500 saved by families without a 529 plan. While the 529 plan savings average is at a record level, there’s still a ways to go. That amount is only enough to pay for one and a half years of in-state tuition, fees, room and board at a public, four-year university or 80 percent of one year of expenses at a private college, according to the College Board.
Assets in 529 plans reached a record level of $258.2 billion in June, a 5.6 percent year-over-year increase, according to the College Savings Plans Network, an association of the state-sponsored plans. Fidelity reported that 39 percent of the parents surveyed have a 529 plan, up from 32 percent last year.
“Saving for college is all about awareness and discipline,” said Betty Lochner, chair of the College Savings Plans Network and director of Washington state’s 529 prepaid plan. She recommends parents start their college fund as soon as possible. On average, parents report that their child was 7.2 years old when they started to save for their college, according to Fidelity.
With Americans shouldering a record $1.2 trillion in student loans, it would be wise to move college financing from a debt model to a savings model, Lochner said.
Perhaps millennial parents are taking that message to the bank.