As millions of families prepare to send students back to another uncertain year of school this fall, the rising cost of college—and how to pay for it—is worrying many.
According to Fidelity Investments’ 2021 College Savings and Student Debt Study, 6-in-10 college-bound high school students say the pandemic has shaped their view of the role of higher education. However, the study also reveals that there is a “staggering disconnect” regarding the actual cost of college and the reality, including the devastating impact it can have on retirement savings. This underestimation is also reflected in how much debt students and parents expect to carry once they graduate.
The study also finds parents increasingly willing to put their own financial wellness second to helping their children achieve the dream of college. In fact, parents of high schoolers are more likely than those of recent graduates to say they plan to or have taken out federal PLUS loans, a type of education debt that’s increasingly weighing down Boomers and Gen-X.
“Covering the cost of college can be overwhelming, which is why it’s so critical to save as early as possible,” said Rita Assaf, vice president of Retirement and College Leadership at Fidelity Investments. “As young people see other generations struggle with the burden of student debt, they have clearly grown increasingly aware of how it can impact financial security.”
Expectations vs. reality
On average, high school parents expect the annual cost of college to be $22,257 (for tuition, room and board, books, and fees), which is far lower than the College Board’s 2020 report. Even more concerning, one-in-four high school parents believe the full sticker price for one year of college will be $5,000 or less, and 38% of high school students say the same.
Estimates for student debt by those not yet in college also fall far below the national average:
- Four in ten high school students who plan to take loans expect they’ll have a balance of $5,000 or less by the time they graduate.
- More than a quarter (27%) of high school parents say they’ll have similarly low parent loan balances.
The ultimate hangover: When the post-grad debt sets in
Students and parents both admit that loans play a major role in financing higher education; in fact, 49% say they anticipate taking or did take on debt (student loans, Federal PLUS loans, or other parent loans) to pay for the cost of college. But nearly one-third of recent college graduates say they don’t know how long it will take to repay these loans.
When it comes to parents taking on debt to finance their child’s education, the study reveals an increasing willingness to take on PLUS loans (26% of high school parents plan to use them, vs. just 18% of parents of recent graduates). The sticker shock of PLUS loans (and its high-interest rates) can be an unwelcome surprise as 72% of parents say the final balance of their Federal PLUS loans was higher than expected. And three-quarters indicate it will impact their ability to save for retirement as well as their ability to pay down other debt.
“Before taking out debt to finance their child’s education, parents should carefully consider how repayment will fit into their day-to-day budget and how it could impact long-term goals such as retirement,” said Jesse Moore, Head of Student Debt at Fidelity.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
