Lessons learned about college savings

According to the College Board, the average cost of tuition and fees for the 2017–18 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities. And as college costs continue to soar, parents need to prepare to pay more to send their children to college.

In order to pay for college, parents are saving more. In fact, they are saving a lot more than they were 10 years ago, according to the latest Fidelity College Savings Indicator Study. Today, nearly three quarters of parents surveyed are saving for college vs. only half in 2007 when the study began. Additionally, about 43 percent of parents expect to pay all of their children’s tuition costs themselves versus just 16 percent of parents surveyed in 2007 who said they would pay 100 percent of the college expenses.

And as higher education costs have continued to rise, so has the amount of debt both parents and students have amassed during the college years. In 2016, the average college graduate had a little more than $37,000 in student-loan debt. And their parents also had student loan debts. In 2016, more than 3.3 million borrowers held $74.5 billion in parent PLUS loans used to pay for their children’s education, according to the U.S. Department of Education. That implies the average parent PLUS borrower had a balance of more than $22,000.

Most people underestimate the actual costs of college. According to the 2017 Fidelity College Savings Indicator Study, parents’ college cost expectations are nearly half the average projected sticker price for college. For example, parents of current high school students predict private college will cost $145,000 for four years, when the actual projected cost is more likely to be more than $218,000.

To help parents plan effectively for future college expenses, here are some lessons parents of current college students say they wished they learned sooner to boost their college-savings preparedness:

Consider a 529 college savings account early

Although you can’t go back in time, 24 percent of parents surveyed by Fidelity said they wished they would have opened their 529 college savings account sooner. New parents always have competing priorities, and many don’t think about starting to save for college for their young children. Still others delay beginning to save for college until their children are older and expressing an interest in attending college.

Starting early can make a huge difference, both in terms of the money you contribute over time, and its potential to grow. Saving earlier allows your investments to compound longer and potentially create a larger nest egg over time. It is always preferable to save as soon as possible, but a late start is better than never starting at all.

Treat college savings like a monthly bill

Even though it may be many years before your children are off to college, think about your college savings fund as a current bill to pay. Soon enough the real bills will be in the mail anyhow, so start as early as you’re able.

For many people, getting into the monthly and regular habit of contributing to their child’s college savings accounts early on is a great first step on the path to making their savings goal a reality.

Save an extra $100 or more per month for college

A surprising finding in the Fidelity study was that 45 percent of parents with kids in 10th grade and higher said they could have saved an additional $100 or more each month for college. Of that group, half said they could have saved an additional $200 per month.

These extra dollars, if invested early and given time to grow, could yield significant savings over time. Saving that extra $100 or $200 per month might seem out of reach, but by saving that extra amount over a long period of time, you could potentially boost college savings by $20,000 or more depending on your personal rate of return and the length of time you invest the extra funds.

Make a solid plan for college savings

Eleven percent of parents surveyed by Fidelity said they wished they had begun working with an advisor sooner. One question I hear all the time is “are we saving enough for college?” Parents with a financial plan in place reported saving an average of $6,300 last year toward future college expenses, versus only of $4,700 for those without a plan.

Take the time to plan

Like achieving any other goal, saving for college requires a focused effort over many years. It’s important to start when your children are young. Along the way, parents should be prepared to make course corrections due to changing tax laws or economic conditions. By developing a plan early, adopting smart savings strategies, and working with an advisor, parents can better keep college savings on track along with other savings priorities like retirement.

As your children grow up and prepare to forge their own future, remember that staying invested appropriately is key. Working with an advisor is beneficial to making sure your savings goals are attainable as your child approaches college age. While not a guarantee against any downside, working with an advisor may help manage potential negative effects of a market downturn just when those tuition bills start showing up.

Anthony N. Corrao is president of Manhattan Ridge Advisors, with 25 years of financial-planning experience.

The information is intended for informational purposes only, and is not intended to be a substitute for specific tax, legal or investment advice. Securities offered through First Allied Securities Inc., a registered broker dealer. Member FINRA-SIPC. Advisory services offered through First Allied Advisory Services, a registered investment adviser.