At A Time of Extraordinary College Loan Debt, Gen Z Is Looking for New Approaches to Higher EducationRichard J. Polimeni | Chair, College Savings Foundation
The realities of paying for higher education create a formidable wall of concern for many families. There is the cost of college, which is daunting even for those expecting to receive financial aid packages. Then there is the student loan burden itself: a nationwide, mind-numbing $1.5 trillion that becomes intensely personal when its owners know it is hampering their futures and their children’s futures.
That is why it is so important for families to have strategies to bridge the gap between their desire for the benefits of higher education and their worries about its costs.
Saving for college helps to diminish the prospect of student debt while encouraging children to choose higher education. Children who know they have access to savings specifically for college are more likely to attend, according to a 2013 study by Washington University in St. Louis.1
The case for saving versus borrowing for college is compelling. If a family puts away $100 a month for 18 years, they will have $35,000 in savings including interest, assuming a 5 percent return. If, on the other hand, they borrow $35,000, with an average interest rate of 5 percent, they will be paying back $371 a month for ten years, for a total cost of $44,547.2
To assess the attitudes and behaviors of families about the importance of planning and paying for college, the College Savings Foundation (CSF) conducted a survey over the past 12 years, resulting in a snapshot of 800 parents across the country and at all income levels for our State of College Savings survey. Nine years ago, we started asking similar questions to high school students in a separate survey, which found that the vast majority of students were planning to take some responsibility for the cost of their education.
The good news is that we have found a consistent intent among parents and their children to save and pay for higher education, rather than finance it later. For parents, this is despite—or due to—their own college debt. In 2018, 45 percent of parents said they were still paying off their college loans.3 Now they are using proven strategies such as starting early and saving systematically. In fact, in the last five year that the question has been asked, parents have said that saving is their number-one strategy for paying for college.
This year, 79 percent of parents responded that they are saving for their children’s higher education. 45 percent have amassed $25,000 or more per child.
Half of the families surveyed had a 529 college savings plan in place for their child, either through ownership by the parent (33 percent) or in the child’s name (17 percent). A 529 is a key tax-advantaged savings tool that enables families to withdraw funds for qualified education expenses free from federal taxes and, in many states, state taxes.
The other major trend we’ve seen is that both parents and their children are looking at the value of college—the return on investment—as it applies to their interests and career goals. This shows up in their appreciation for community college and vocational school: 64 percent of parents said they think about those institutions in the same way as they do about public and private education, which is the highest level in the five years that question has been asked. 52 percent of high school students surveyed thought this way as well.
Parents and their children are taking a discerning eye to higher education offerings as they pertain to future employability. In a new question asked in this year’s surveys, 83 percent of parents said they would like to see colleges and universities promote skills training, rather than majors, to help with future employment. 78 percent would prefer their child to go to a school that takes this approach. Similarly, 81 percent of the high school students surveyed this year would like to see colleges promote skills training, and 70 percent would like to attend a school that does so.
High school students seem to be making a near-term calculation of their own return on investment in higher education. This year, 74 percent said they chose schools based on cost. In a related finding, 28 percent are planning to attend community college and 8 percent anticipate that they will attend vocational school—the highest percentage in five years. Meanwhile, intentions to attend public and private colleges have declined, with 41 percent going to public college and 12 percent going to private college.
Students are not afraid to pitch in on costs. 51 percent are already working to earn money for college; 85 percent plan to work while in college; and 62 percent will live at home to reduce expenses.
In conclusion, today’s high school students and their parents are actively seeking value when choosing how to pursue higher education. By having access to practical strategies for saving and paying for higher education, American families have greater opportunities to pursue and achieve their employment and personal goals.
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1 Relationships Between College Savings and Enrollment, Graduation and Student Loan Debt, March 2013, George Warren Brown School of Social Work, Washington University. https://csd.wustl.edu/publications/documents/rb13-09.pdf
2 Based on Bankrate.com Student Loan Calculator. https://www.bankrate.com/calculators/college-planning/loan-calculator.aspx
3 CSF’s 12th Annual State of College Savings Survey, and CSF’s 9th Annual How Youth Plan to Fund College Survey. https://www.collegesavingsfoundation.org/category/press-releases/
Author Perspective: Analyst