5 Hard Truths About Saving for College and the Cost of Education

Source: Thinkstock

Source: Thinkstock

“College as a worthwhile investment is nearly undisputed,” Sallie Mae’s How America Pays for College 2014 report says. “However, this does not imply that all families approach paying for college similarly. Different types of college families show unique values, motivations and behaviors in relation to planning and paying for college.”

Some data support this finding. The number of people attending college between 2001 and 2011 increased 38%, with much of that growth occurring in full-time enrollment. This compares against an increase of just 11% in the period before that. But rising costs, a dense financial environment, and a tough economy have made it increasingly difficult for families to save for college.

1. The cost of college is skyrocketing

The cost of college in America has increased dramatically over the past 30 years. In constant 2011-2012 dollars, the average cost of education at a four-year institution in 1981 was $9,554. By 2012, the average cost had exploded to $23,066. At a two-year institution, costs have increased from $5,986 in 1981 to $9,308 in 2012.

2. Many families have reached a cap of what they’re able to spend, despite rising costs

The average spending on college in the 2013-14 academic year was $20,882, about the same as spending levels in the previous three years after a spending peak in 2010 of $24,097. “Despite rising college costs, families made choices that held down their spending on college,” the report says. Though some types of colleges have dropped in price following the 2010 spike, families reported higher out-of-pocket spending in 2014 than in the previous three years. Out-of-pocket spending for parents and students combined accounted for $8,850, about 42% of the cost per year. That’s compared to covering 38% of the burden in 2013, 40% in 2012 and 41% in 2011.

Source: Sallie Mae's 2014 How America Pays for College report

Source: Sallie Mae’s 2014 How America Pays for College report

3. Instead of paying more, families opt to choose different education options

“School choice may be a key driver in containing total average spending,” according to the report. In 2014, families reported the highest numbers of enrollment in two-year public colleges since Sallie Mae began producing the reports in 2008. About 34% reported attending such a school, up 30% from the year before. Concurrently, attendance at four-year public colleges declined from 46% to 41%. And the cost savings are there: the average amount spent in 2014 for two-year public colleges was $11,012, compared to $21,072 at public four-year schools.

Source: Sallie Mae's 2014 How America Pays for College report

Source: Sallie Mae’s 2014 How America Pays for College report

4. Many families struggle to set savings goals

Fewer than half of families saving for college have set a goal for how much they’d like to stash away. According to Sallie Mae’s sister report, How America Saves for College, 45% of families reported they had a specific number in mind. Savings goals are more likely to be set on how much families think they can afford (28%) instead of how much they think will be necessary to pay for the education (24%). Parents currently pay for an average of 10% of their child’s college costs from their savings accounts, and confidence rises to save that amount among those who plan for it, as well as those with higher income levels.

Source: Sallie Mae's 2014 How America Saves for College report

Source: Sallie Mae’s 2014 How America Saves for College report

5. Many families are not saving at all

About half of families are not saving anything for college, according to the savings report. Many families who aren’t putting money away say they simply don’t have the money to do so (about 58%). Those families often have savings of about $49,013, about one-third the amount of that saved by families who save for college. Those families often prioritize savings for retirement (50% of the total savings) and buying a home or car (a combined 23%). And though it’s rather self-evident, more non-saving families feel overwhelmed by the prospect of saving for college than families who have begun saving for college (33% and 20%, respectively).

Source: Sallie Mae's 2014 How America Saves for College report

Source: Sallie Mae’s 2014 How America Saves for College report

Follow Nikelle on Twitter @Nikelle_CS

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