Cecily O'Connor
RedwoodAge.com
When it comes paying for a four-year college education, parents of high school seniors are on average about $87,000 short, according to research from Fidelity Investments.
A survey of nearly 2,300 parents with children aged 18 and younger found that they have about 13 percent of the estimated $100,000 needed to fund a college education. Additionally, parents anticipate student loans will cover 17 percent of their child's total college expenses, but loans are expected to become more difficult to secure and may carry higher interest rates and less favorable terms.
While financial aid and loans can be part of the overall savings strategy, they "should not be a substitute for saving early," said Joe Ciccariello, vice president of college planning at Fidelity.
That's especially true because loans leave young adults vulnerable to big debt in the future. idelity estimated that for parents to cover 17 percent of college costs in loans, today's high school seniors could incur $25,000 or more in future debt.
As tuition continues to escalate at twice the rate of inflation, parents (and grandparents) can save for college expenses down the road. So- called 529 plans, which come with certain tax advantages, are one way to sock away money and limit loan reliance. More than 10 million accounts have been opened nationally, and currently more than $130 billion has been saved in 529 plans, according to the College Savings Plans Network.
"Our research shows that parents of children ages 15 to 18, who currently utilize a 529 plan, have significantly more savings - and are on track to cover almost half of college expenses," Ciccariello said.
To that end, Fidelity recently introduced two new tools on its college-planning Web portal, including a 529 plan comparison tool to review features and benefits of various college savings plans, and a state tax deduction calculator to determine if there is a significant tax advantage to investing in one's state plan versus another.
As always, it's smart for parents to speak with a financial planner to determine what's right for their own financial picture.
