As college costs surge, three-quarters of parents have started saving for their kids

A new study by Fidelity reveals saving for college continues to be a major priority for American families even as they face ongoing pressure from inflation and ballooning tuition fees.

The 2024 College Savings Indicator Study shows that three-quarters (74 percent) of parents have started saving for their children's education, up from 58 percent in 2007 when the study was first conducted.

While there’s some debate over the cost-to-benefit ratio of a college diploma for today’s workers, 77 percent of the parents Fidelity polled are sure a college education is worth the expense, even though 30 percent aren’t certain how much they’ll have to pony up by the time their kids have to enroll, and 55 percent are making “their own best guess.”

“While parents prioritize their children’s college education, the reality is that balancing day-to-day expenses with long-term savings can be daunting,” Tony Durkan, vice president and head of 529 Relationship Management at Fidelity Investments, said in a statement.

The study found a dominant 93 percent majority of parents feel uneasy about inflation and rising college costs, while 87 percent are concerned about changes in education costs, such as free tuition or student debt forgiveness. Over a quarter (26 percent) cite inflation as the steepest barrier holding them back from adding to their children’s college education funds.

Despite these challenges, nearly two-thirds (64 percent) of parents have a plan to achieve their college savings goals. A solid 84 percent intend to either keep up or amp up their regular savings contributions for the rest of the year. However, while parents aim to cover 67 percent of their child's education expenses, Fidelity estimates they are currently on track to meet only 30 percent of that goal.

Adding to the uncertainty, a little more than a third of parents (35 percent) said their children have indicated they might not go to college. They may take some comfort from legislative changes rolled out last year, allowing them to maneuver from education to retirement saving mode in certain cases via a 529-to-Roth rollover.

“Leveraging savings tools such as a 529 plan can make a substantial difference when it comes to easing the financial burden for college,” Durkan added. “Thanks to recent legislation like SECURE 2.0, 529 plans have become even more flexible and enticing as a savings vehicle for parents.”

The survey also shed light on the potential value of having heart-to-heart conversations on college expenses. While two-thirds (68 percent) of parents believe their children understand the potential costs and student loan debt their college education may translate to, a quarter (26 percent) admit they have not discussed the total cost of college with their children, and 35 percent have not talked about the potential student debt they may take on.

Those conversations could be valuable kickstarters as parents who’ve had them are more likely to have started saving (80 percent vs. 61 percent) and to have opened a 529 account (44 percent vs. 29 percent). Those parents have also set aside more on average, with $20,000 compared to $12,000 for those who have not discussed college costs with their children.