The new school year is now underway and high schoolers are thinking ahead to college, but the pandemic is really forcing students to reshape their views on higher education.
“They’re much more focused on costs and the trade-off between those costs and their ability to get a good paying job once they graduate,” John Boroff, director of retirement and college leadership at Fidelity Investments.
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The company recently completed a new study on college savings and student debt. It shows this group of students are more concerned about the rising costs of college and are making that a priority when choosing a school.
it also shows parents may need a reality check.
“One of the biggest surprises we found was 25% of parents said they thought a year of college would cost $5,000 or less and that’s far below the national average,” Boroff added.
In fact, in 2020, the national average for a 4-year public college was $26,800 for in-state, $43,200 for out-of-state and $54,900 for private colleges. That’s why it’s so crucial to plan now.
“It’s really important to start saving as much as you can, as soon as you can. Recognizing young families are often juggling multiple financial priorities but even small amounts can add up over time, and for those with older children getting closer to college age, the start of the school year is a great time to have a conversation about expectations of costs, the student’s role in covering those costs and how those costs are going to affect the family’s overall financial picture.”
John suggests one way to turn your everyday spending into savings, “you can do that by getting a credit card that lets you funnel rewards directly into a dedicated college savings account like a 529. You can also consider involving your friends and family in your savings efforts. We’ve seen a big increase in gift contributions to 529 accounts in recent years.”
Of course, the other option is a student loan, which could leave students in a lot of debt. John says there’s been an increase in the use of federal plus loans.
They tend to have higher interest rates, but they’re in the name of the parent, not the student.
“So parents have to be really thoughtful about taking that debt on and how it impacts their ability to save for other goals like saving for retirement and paying off their mortgage,” Boroff said.”
Again the best thing you can do to save for college is to plan now, establish a goal and track your progress over time.
For more information and a college cost calculator, click here.