Survey: 74% of families who earn between $35,000 and $100,000 say they can't afford to save for college

March 3, 2013

Families of college-bound students remain optimistic — perhaps too optimistic — about their ability to cover tuition costs, according to a new survey of more than 1,600 parents with children under 18.

The survey, conducted by Ipsos Public Affairs on behalf of student-aid company Sallie Mae in August, was released Tuesday.

The parents who have set savings goals — just 50% of respondents, down from 60% in 2010 — plan to sock away about $39,000 per child, or about one-third of future college costs. That’s in line with what parents actually do pay, according to a prior Sallie Mae report. However, at their current pace of savings, most families will hit just half that savings amount. (The good news is that most families ramp up savings as their children near high school.)

Not only did fewer families save for college last year, but they also saved less. Parents who saved have socked away almost $12,000 total last year, a sharp drop from over $20,000 reported in 2010. That might explain why only 55% of those who are saving for college said this year that they feel confident about being able to cover the costs. (The Wall Street Journal’s “Price of Admission” series explores this issue).

High-income parents, those earning $100,000 or more, saved much more money than those earning less: almost $20,000, on average. But savers who earned less than $35,000 annually put 6% of their income away for college, a higher proportion than high-income parents, who saved 3%.

For those parents who aren’t saving for college, 53% say a major reason is that they can’t afford it. Another 18% cite that as a minor reason, while 13% say a lack of money plays no role in their college-savings decision. More than half of nonsavers say they’re not saving at least in part because they expect their children to receive scholarships and grants to cover college costs.

But that’s a risky calculation to make, as the average amount of funding U.S. undergraduates got from grants and scholarships fell 15% during the last academic year. On average, students received $6,077 in grants and scholarships in the 2011-2012 academic year, down from $7,124 a year earlier, according to a July Sallie Mae study.

Unsurprisingly, 70% of parents with income below $35,000 say a lack of money comprises at least part of the reason why they’re not saving for college. But what is a shock is that the share of families who earn between $35,000 and $100,000 and say they can’t afford to save is even higher, at 74%. (Among families earning $100,000 or more, 72% of respondents cite money — or lack thereof — as a reason for not saving.)

source: wsj