By: Annamaria Andriotis
August 29, 2011
Many boomers are reevaluating how much they can put toward a kid's education.
As Zack Zbar gets ready to apply to colleges this fall, his parents have established one important ground rule. Jeff, a Florida writer, and his wife Robbie, a nurse practitioner, would like to send their son to the best college he can get into, but they don't intend to go into debt to make that happen. They'll look for grants and scholarships, or they'll turn to an in-state option. "If we can't afford it, then we have some reckoning to do," says Jeff, 47.
A growing number of parents are rethinking how much they're willing to spend on a child's college tuition. According to a report released last week by student lender Sallie Mae, about 51% of parents "strongly agreed" that they would stretch financially or go into debt to send their children to college, down from 64% and 59% of parents last year. It marks the first time those numbers have dropped since the firm began the survey in 2007.
It also marks a reversal in the longstanding ambition of parents to send their kids to college despite the cost. Of course, those expenses have gone way up. The average annual cost, including tuition and fees, at a four-year private university last year was more than $27,000 -- a 70% increase from a decade ago and nearly three times what it cost 20 years ago, according to the College Board. The average cost at a public college, meanwhile, has grown fourfold since 1991, hitting about $7,600 last year. But wages haven't grown nearly as fast, and even for higher-income parents the rising costs have become a major challenge. For their children, who may be signing up for six-figure debt levels upon graduation, it raises the stakes significantly.
Many experts applaud the parental pullback. "Students should have some skin in the game to reduce parents' costs," says Deborah Fox, a San Diego-based financial planner and founder of Fox College Funding. The parents of college-aged kids belong to a demographic that has woefully under-saved. Only 27% of individuals aged 45 to 54 have $100,000 or more in savings and investments; just 41% of those 55 and over, according to 2011 data from the Employee Benefit Research Institute. That's far from the amount of money they'll need to fund retirement, which may be less than a decade away.
Still, those hoping for a new era of financial prudence may be disappointed. The about-face is largely due to the economic downturn's impact on families' finances. For many, wages have been flat, or one parent has lost a job. Home values have fallen, and investments that may not have fully recovered from the last crash now seem vulnerable again, says Lydia Sheckels, chief investment officer at wealth management firm Wescott Financial Advisory Group. And while parents whose children enrolled in college at the beginning of the last downturn may not have been willing to derail long-laid plans, parents of incoming freshmen and current high-school juniors and seniors have had time to reevaluate how much they were willing to spend before their child committed to a college, says Cliff Young, managing director at research firm Ipsos Public Affairs who co-authored the Sallie Mae study.
For many students, the result may be a downsized college experience. Already the number of parents asking their kids to graduate in fewer semesters has doubled to 28% in the last five years, according to Fidelity's 2011 College Savings Indicator study released last week. Meanwhile, 37% of students from high-income families making $100,000 or more a year lived at home while attending college, up from 25% the previous year, according to Sallie Mae. And more students from high-income families are starting at two-year colleges to help cut costs: During the 2010-11 academic year, 22% of students from families making $100,000 or more a year attended a community college compared to 12% the year before.
In some cases the transition isn't as stark. Mark and Jennifer Schmitt of Oakton, Va., recently made a deal with their three daughters: they would cover the full cost of in-state public school tuition and a little bit more. But if any of the girls chose a private college, they'd have to make up the difference. "You've got to make a choice -- do you delay retirement significantly or do you fund education," says Mark.
That's not an easy choice, says Sheckels, especially for parents whose own tuition costs were covered or for those who didn't attend college and hoped to provide that education to their children. "It's one of the toughest things for a parent to admit to themselves or a child that they can't afford to do this."
Longer term, it's possible that both parents and students could benefit. If, by taking on less debt and not depleting their savings, parents end up better prepared for retirement, there may be less financial stress for their children as mom and dad age. And if, by being more cost-conscious from Year One, students graduate with less debt, they could be more likely to make ends meet after graduation. They'll also have a better shot at pursuing a profession they truly want rather than finding a job that pays enough to cover their loan payments -- a challenge that thousands of students are currently facing.