529s need to raise profile, studies show

College savings plans may be receiving record amounts of money, but nearly half of American parents still don’t really know what they are, according to two surveys released late last month.

One study, by the College Savings Foundation, found that 48% of surveyed parents said they either had never heard of the government-sponsored, tax-advantaged investment vehicle or didn’t know exactly what it was.

CSF is a Washington-based trade association for financial services companies that manage Section 529 college savings programs.

A survey commissioned by Fu-ture-trust, a Philadelphia-based firm that offers a credit-card-linked college savings program, also found that 48% of parents surveyed said they didn’t know what a 529 plan was.

What’s more, the Futuretrust survey said, families that need the most help are the least aware of 529s.

Just 35% of families with annual household salaries below $35,000 said they knew what a 529 plan was. Half of families that earned between $50,000 and $75,000 said they knew, while 69% of those with an income of at least $75,000 said they did.

“These statistics are disheartening because the people who could most benefit from 529s don’t know about them,” said Rebecca Matthias, founder and president of Future-trust, which is owned by Mothers Work Inc., a Philadelphia-based maternity apparel designer and retailer.

Chuck Toth, director of education savings programs for New York-based Merrill Lynch & Co. Inc. and secretary of the College Savings Foundation, also expressed disappointment that public awareness of 529 plans is “still low.”

Equally distressing, he added, is the CSF survey’s finding that this lack of awareness appears to have resulted in poor investment strategies.

For example, nearly 33% of parents surveyed said they had their college savings in cash, the most common response, while 17% had such savings tied up in certificates of deposit. And just over half of parents surveyed who said they had more than $10,000 in college savings said the money was invested in taxable certificates of deposit.

“Even people who are saving are doing so in instruments that aren’t tax efficient,” Mr. Toth said.

“Their interest is being taxed, and they’re putting money in more-conservative vehicles with lower returns. As a result, they’re not keeping up with college [tuition] inflation,” he added.

The surveys also found that despite expressing the importance of a college education, parents aren’t saving enough for college and appear to be resigned to relying heavily on debt to finance their children’s education costs.

Just 9% of parents who re-sponded to the Futuretrust survey said they had saved as much for college as they had planned, and just 13% said they were absolutely certain that they would save enough for their child’s education over the following 10 years.

While 53% of parents surveyed by the CSF said that saving for college was their top savings goal, and 63% said they intended to fund their children’s education, a startling 27% said they hadn’t saved anything for college. And another 27% said they had saved less than $5,000.

Those numbers spotlight “the significant gap between parents’ worthy intentions and their actions,” said CSF chairman David Pearlman, senior vice president and deputy general counsel for Boston-based Fidelity Investments.

What’s more, 68% of parents surveyed by the CSF said they expected no help for college funding from grandparents or any other source.

To compensate, parents are turning to loans.

Half of parents in the Futuretrust survey said they expected loans to help them pay for their children’s college education, and 38% of parents in the CSF survey said they expected to take at least 10 years to pay back college debt. Just 17% expected to pay off college loans in less than five years, while 82% said they expected to be paying off loans beyond five years.

“This is really alarming to us,” Mr. Toth said. “It’s like having a second mortgage. When the kids are out of school, many parents will be close to retirement, and this debt will have a very negative impact on their retirement planning.”

Not surprisingly, parents between 46 and 55 years old, who are most likely to have kids nearing college age, have saved the most for their children’s college education, the CSF survey found, while the youngest group of parents surveyed — those between 31 and 35 — have saved the least. But the older group’s debt outlook was still bleak, with nearly 40% expecting to be in debt for college loans for a decade or more.

The overall lack of awareness of 529 plans and meager savings show that the industry still has “a ways to go,” said Joe Hurley, president and chief executive of Pittsford, N.Y.-based Savingforcollege.com LLC.

The industry needs to find more marketing dollars, he said, ideally for a national campaign. To date, Mr. Hurley noted, marketing efforts have been decentralized on a state by state basis.

“There is not one clear message about 529s,” he said.

The recent survey results underscore the need for more marketing of the plans, Mr. Toth said.

“This should enable firms to shift their attention, and focus on marketing,” he said.

The Futuretrust survey was conducted online by Rochester, N.Y.-based Harris Interactive among 2,757 adults, of whom 989 were parents or expectant parents of children likely to attend college.

The CSF surveyed 447 parents online using the Zoomerang program from Market Tools Inc. of San Francisco.

Of those who responded, 23% had an annual household income of less than $50,000, the household income of 34% was between $50,000 and $100,000, and 35% had incomes between $100,000 and $200,000. The remaining 8% had income of more than $200,000.

Charles Paikert can be reached at [email protected].