The recession and ongoing economic crisis are turning college, the longtime American dream, into a financial nightmare for more families.
Although 67% of families have begun to save for college (up from 58% five years ago), the typical family is now on track to cover only 16% of projected college costs (down from 24% in 2007), according to Fidelity Investments' 2011 fifth annual College Savings Indicator study.
Families with annual income at or above $150,000 plan to save an average of $70,560 by the time their oldest child is 18, according to "How America Pays for College 2010," an annual report from student loan company Sallie Mae. Meanwhile, the price tags for tuition, fees and room and board are topping $50,000 at a growing number of elite private schools.
The combination of market volatility and rising college prices has left even some of the most diligent savers with unforeseen shortfalls. "With these two factors together, there's no one answer to financing the whole pie," says Andrea Feirstein, founder and managing director of AKF Consulting Group, a leading consultant in the 529 college savings market.
One strategy that has been receiving more traction, she notes, is choosing less expensive schools. During the 2010-2011 academic year, 22% of students from families with annual household incomes exceeding $100,000 attended public, two-year schools, up from 12% a year earlier, according to Sallie Mae's 2011 report.
Nearly half the families (48%) in the Fidelity study plan to have a child live at home and commute, up from 38% in 2007. Four years ago, 34% of families encouraged a child to attend a public institution, and that number has risen to 44%. Meanwhile, more families are pressuring their children to graduate in fewer semesters. Four years ago, only 13% of families were encouraging their children to graduate sooner. That number has also risen to 44%.
Students who've turned down admissions to elite schools in favor of public colleges so they won't be buried in debt were the subject of a recent Wall Street Journal article.
With Americans owing nearly $1 trillion in student loans (more than they do in credit card debt), it's important to be cost-conscious-especially if the children plan to go on to graduate school. The problem is that some families may be making ill-informed decisions by focusing on the wrong numbers, not recognizing there is free college money out there and there are better loan options.
"It's more important to get informed than it was three to four years ago. We're closing doors on our kids," says Perry DeFontaine, the president of Freehold, N.J.-based independent college advisory firm College Insights and a financial advisor with MetLife's Barnum Financial Group.
Rather than sticker prices, DeFontaine and others say parents should look at net prices-what's paid after grants, tax credits and deductions. Only about one-third of students pay for college without grant assistance, according to the College Board's "Trends in Pricing 2011" report.